Who Uses Payday Loans? You'd Be Surprised


This is Jerry Mitchell’s story, as told to Nancy Mann Jackson.

When money is your business, it’s important to be a good financial example—and, at 33, I am. I’m completely debt-free. I paid my own way through college by working full-time and going to school part-time and saved up enough to open a wealth management business in Florida, so that I could help my young clients be financially successful, too.

Based on these facts, you might not guess that 10 years ago, I used rent-to-own services and relied on payday loans to make ends meet. (And yes, I paid the astronomical interest rates that make these lenders infamous.)

Although it may seem surprising that someone in my position used payday loans, it’s more common than you’d think. A 2015 PwC study found that millennials from all backgrounds are heavy users of “alternative financial products,” which also includes pawn shops and tax refund advances. Almost 30 percent of college-educated young adults say they’ve used them in the past five years.

I grew up in a low-income community in Orlando, Fla., where payday loans, rent-to-own and check-cashing services were not only frequently used, but fully accepted as a way to finance both needs and wants—or to help out in a pinch. They were essentially a stand-in for savings.

Although my mom was a hard worker, she had a low-wage job and supported three kids alone, and used rent-to-own services to make weekly payments on our furniture. As a young adult, I watched a friend take out a payday loan when his daughter needed cash he didn’t have for a school field trip. Because most of the people I knew used these services, it seemed normal to me.

In my early 20s, I used a rent-to-own service for the first time to purchase car rims—forking over $60 a week for one year, which is double what I would have paid had I bought them outright. But at the time, I didn’t understand I’d be paying about 150 percent interest—on pre-owned rims. (Most people don’t realize that many rent-to-own products are used, even though you pay brand-new prices. And these stores don’t tell you how much you’re paying in interest; they just quote the “small” weekly payments.)

As an undereducated customer, I actually thought I was getting a great deal—initially. However, after about four months, I did some math and came to the conclusion that saving up money from my hourly job as an assistant manager at a storage facility would have been the smarter strategy. But I kept making on-time payments for fear of triggering an insanely high late fee and having the rims repossessed.

Still, I hadn’t quite learned my lesson yet. Around the same time, I got my first payday loan because I needed about $200 worth of car repairs. Of course, I failed to consider that since I was already living paycheck to paycheck, I wasn’t likely to have extra money to pay off the loan plus interest.

I needed to pay back $225 in two weeks. Unfortunately, I was late with the payment, and the company deposited my $50 personal check they held as collateral. The check bounced, and I had to pay my bank’s $35 insufficient funds fee on top of everything else.

That’s when I really began digging a hole for myself—one that got deeper over the course of several months, as I missed other bill payments and racked up even more late fees. While I didn’t end up in massive debt, it did cost me about $500 in avoidable fees ($300 more than the amount I’d originally borrowed), plus the opportunity to save.

It was during that time that I realized I needed to make a change. So one day I sat down and really looked at my money—my income, expenses and weekly payments to the rent-to-own company and payday loan provider.

I wanted a better life than the one I’d grown up with, and I decided any sacrifices I made would be worth the financial stability I’d achieve. So I challenged myself to not only spend less in order to pay off my debt, but to also to build up my savings.

I slashed my grocery bill by eating $1 Wal-Mart frozen meals for lunch and dinner. I stayed in way more than I went out. I traded in my cell phone for a prepaid plan, and I canceled my cable. I also found a temporary night job as a security guard to speed up the process, and before I knew it, I’d paid off my debt and built up $800 in savings—the amount of my bi-weekly paycheck. Feeling encouraged I’d never need to rely on payday advances again, I stuck with the same game plan and watched the balance continue to grow.

Around that same time, I found a new job at a bank, where part of my job involved opening deposit accounts and signing up clients for overdraft protection. I found myself talking to people who were in situations similar to the one I had been in—living paycheck to paycheck and struggling to make ends meet—and offering advice on how to make better decisions, based on my own experiences, like how to create a budget and stick with it. People seemed to genuinely appreciate it, and I realized just how passionate I was about financial education.

Did I have everything in my financial life in order? No. A growing savings account was just the tip of the iceberg. I hadn’t opened my 401(k) account, my credit score still needed some work and I didn’t have a long-term financial plan in place yet. (Of course, I’ve checked these things off my list now.) But being financially responsible is a lifestyle, not a fad—and there isn’t a finish line. I realized while working at the bank that pursuing training and a career in financial planning made sense for me.

Today, I love sharing stories about my past with clients—and they love that I can offer more than just theoretical advice about digging your way out of something tough. I’m living proof that no matter your background or the poor financial decisions you’ve made in the past, it’s never too late to make better ones.