September 11, 2023
Most of us look forward to our long-awaited paydays. Unfortunately, bi-weekly and monthly payments could often seem too far away for comfort – especially when bills loom.
As more Americans seem to struggle while living paycheck to paycheck, many must resort to payday loans or other high-interest options to cover expenses that arise before their paycheck. Credit card debt just surpassed $1 trillion for the first time as people continue to rely on debt, and 61% of people reported struggling to make ends meet as of August.
There’s never a good time to be short on money, but 2023 certainly qualifies as one of the worst. In an environment where interest rates are rising alongside already heightened prices, the perils that arise with debt reliance intensify – but on-demand pay could help to change that.
What Is On-Demand Pay?
On Demand Pay, also known as Earned Wage Access, is a relatively new concept that enables employees to access their earned income before payday. Employers typically compensate workers for hours worked days or even weeks after those hours are complete; on-demand pay allows employees to access their hard-earned cash as soon as it's earned, before the pay period's end date.
Every employer must approve on-demand pay requests. Once approved, it may be integrated into the employer’s payment system or provided through a third-party service. If an employer has chosen to offer this benefit to employees, they would usually partner with a third-party service to integrate on-demand pay into their payroll system. This service often costs a small fee paid by either the employer or the employee.
Alternatively, some third-party services partner with different employers and have the employees register directly through them to offer on-demand pay.
How To Get Paid Earlier
Step 1: Signing Up for On-Demand Pay
There are many ways to sign up for On-Demand Pay. The most common being through your employer which partners with on-demand pay providers like Clair.
In this example, all you need to do is download the Clair app and create an account. Note that, there are laws that require providers like Clair to collect some personal information to create a bank account.
Step 2: Update your direct deposit
When your account has been created and verified, you’ll then need to update your direct deposit to send your paycheck to your new Clair Spending Account.
Step 3: Advance what you need from your next paycheck
To become eligible for On-Demand Pay and request for advances, you need to set up direct deposit to your new account. This way, you’ll be able to pay back your advances automatically when your paycheck hits your Clair Spending Account.
And that’s it, you can now enjoy all your other banking benefits from Clair! It’s best to keep in mind, though, that this is just one example of how you can get paid earlier, the process would still vary depending on the On-Demand Pay provider you choose.
The Dangers of Living Paycheck-to-Paycheck
Many individuals count down until their next payday, not out of excitement but out of necessity. If you can relate, you may understand the stress and dangers that come with living paycheck to paycheck.
When you’re short on cash and have a few days or weeks to go until payday, you have limited options to turn to. Those with no emergency savings are forced to take on additional debt to cover current costs.
When considering credit cards or different types of short-term loans, you’ll likely spend your paycheck well before you receive it, plus add on an additional bill for the following month.
As per the Federal Reserve, credit card interest rates average 27.99% as of late August 2023 – an almost 6% jump since this past May. Other debts like cash advances also run in the 20%+ mark. When someone is already short on this week’s payments, such high fees add yet another roadblock to financial freedom.
In desperate situations, some people turn to payday loans for quick cash at a high cost. With exorbitant interest rates, these loans often lead to a never-ending cycle of debt and financial hardship.
With such pressing financial needs and nowhere to turn, more than three in four Americans report feeling anxious about their financial situation. Financial stress can cause sleep problems, headaches, strain within personal relationships, and more serious health problems like heart disease, high blood pressure, and long-term mental health conditions.
Benefits of On-Demand Pay
On Demand Pay may be a way to combat the dangers of living paycheck to paycheck, offering financial flexibility, the chance to avoid debt traps, budgeting assistance, and much more.
You work hard for your money and should have the option to access your pay as soon as it’s earned – and that’s where on-demand pay comes in. On-demand options allow you to access your payments when needed the most, especially as a lifeline for unexpected expenses, medical bills, or other emergencies.
No Interest or Hidden Fees
One of the biggest pros of on-demand pay is that there are no hidden costs woven into accessing your cash. Most on-demand systems have a flat fee paid for either by the employer or employee upfront; users know exactly what they’ll pay, if anything, without surprise fees or sky-high interest rates.
Avoiding Debt Traps
By avoiding the traps of payday loans, credit card debt, and other last-resort loans, On-Demand Pay may help employees avoid the harmful cycle of debt accumulation.
Many on-demand pay providers also come equipped with budgeting tools and financial education resources. One of the first and most important steps to financial security and well-being is increasing your financial literacy, which these tools can help you do.
By empowering employees with the knowledge and skills to manage money more effectively, on-demand pay providers like Clair can help you reach long-term financial stability.
Reducing financial stress can improve overall mental health, physical health, and cognitive function, increase productivity, enhance relationships, improve sleep, lower the risk of chronic illness, boost the immune system, enhance coping skills, and even increase longevity.
When to Use On-Demand Pay
On-demand pay may not be best for everyone, but it can help those in the following situations.
If You Run Out of Money Too Soon
When you have too much month left at the end of your money and still have bills to be paid, on-demand pay can be a great way to fill the gap without taking on debt.
When There’s a Minimum Payment Coming Up
Missing a monthly minimum payment can initiate late fees and ding in your credit score. With the option to advance your pay and pay your minimums off, you can avoid taking on more debt to pay the ones you’re already working on.
For Emergency Expenses
Unforeseen expenses can throw a large wrench in any financial plan. When you face unexpected medical bills, car or home repairs, or other emergency costs, on-demand pay could save the day.
For Early Access
We all hate waiting to get paid. For those who simply want to access their hard-earned money once it’s been earned, on-demand pay may be the right move.
On-demand pay is a valuable resource that can help close the gap between your current bills and your next paycheck. It can be used as a source of comfort and practicality in times of need. For those needing financial flexibility, consider on-demand pay to help you regain control of your finances once and for all.
Take advantage of the On Demand Pay solution offered by Clair to cover your urgent financial needs. It’s free for employees to use and it comes with features like fee-free withdrawals from 40,000 in-network ATMs, high-yield Savings Accounts, and an easy-to-use digital banking app.
Get started today for free.