This might seem like an aberration, but there really are times when we have to choose between the lesser of two … we’ll not call them evils … we’ll just go a little non-judgmental on you and examine two choices that might seem incongruous with other advice dispensed on Young and Thrifty.
Those choices are how to cover emergency expenses, those things that go beyond your available cash and might exceed your discretionary budget for any given month. Think about the emergency trip to visit your ailing grandfather. Or that nasty car problem that cost $800 after you hit a pothole (a literal pothole, a true bump in the road) and which caused a pothole (a figurative pothole) in your financial plans.
On one hand, you have the credit card. On the other hand, you have your last pay stub, which is identical to the next pay stub you should see in a week or two. These are your two choices.
Both a credit card and a payday loan (represented by the pay stub) are ways to get money in advance. With a credit card, the charge can hang on for months into the future, if you only cover interest payments on it. Which veteran readers of this blog know is bad, bad, bad. With payday loans, you can access the same amount of money and, if you were to hold the loan for a long time, it would probably cost you even more money than the credit card over six or 12 months. Molto-mondo-mega bad. But holding payday loans for extended periods of time is unlikely.
Functional differences between credit cards and payday loans
The choice boils down to how you handle the payday loan, and the very nature of that type of loan. Payday loans are designed to be short-term loans. And they can only be so big, as much your state allows and according to the size of your income. In other words, with a payday loan you can only get in so deep (for example, $500) versus a credit card where you might rack up something much larger ($5000). With that limitation, you only borrow a manageable amount.
Note that with payday loans, you can dribble out the payments over time as you would a credit card. But the payday loan renewal process is much more likely than a credit card bill to remind you to pay it back ASAP. Also, the application for a payday loan is truly geared toward emergencies: you apply on a Tuesday and you get the cash on a Wednesday. A credit card application would take weeks to process and receive.
Youngandthrifty’s take: I’ve thankfully never had to take out a payday loan, but I think I have come pretty close to credit card addiction. I admit that it was getting more difficult to keep track of the credit cards I have (I used to have just one Mastercard, and then I got a Visa card because Mastercard wasn’t accepted everywhere I travel). I also had my mastercard “held” from Canada for some suspicious transactions while I was on vacation one time- which rendered me with NO credit card and basically it soured the rest of my trip because I had to borrow money from friends. I am a big fan of using credit cards to reap reward points (especially for travel, my weakness). Anyway it’s better now that I have the mint.com app that tracks my balances on my credit cards. It keeps me in line 
Both payday loans and credit card loans are bad- definitely neither one is a “good debt” (if there is such thing) to have. I think the best way to combat these unexpected emergency charges is to have an emergency fund.
Readers: Do you believe in using an emergency fund?
I’m bothered by having a pile of money (3-6 months expenses?) sitting in a savings account not gaining any interest. But that’s me. I would rather have a line of credit at the bank that is opened when times are good and not touched until times are not so good. The trick is that I just have to go do it…
Payday loans scare me.
@Taylor- I know many people who don’t like the idea of having a pile of money sitting there and earning 1.2% interest. I personally don’t like the idea of having to borrow money when its needed (I think I just don’t like the idea of borrowing money in general). I do think that even if there isn’t a designated ‘emergency fund’, I think having an idea where the money can be withdrawn from (e.g. nonregistered stock portfolio) is a good idea, so that the LOC loan can be paid in a timely manner.
That’s like replacing one bad habit with another! Best is to not get into either.
@MoneyCone- good point
Great blog!
(from a young and thrifty woman in Ottawa)
@Camellia- I’m so glad you like it, Camellia!
Tomorrow I’ll have a post about not the young and thrifty, but the young and restless 
Stay tuned!
I have a small emergency fund for exactly this reason – emergencies! Many years ago, after I had ruined my credit, I took out payday loans and let me just say they can lead to a never-ending cycle. It took me two years to pay off $500. It was ridiculous. I’d have to say that the better option is to have a small emergency fund available. If Payday loan places only loan out a max of $500, it’s much easier in the long run to save that $500 in the first place for emergencies. I’ve learned my lesson the hard way!
@Little House- Thanks for sharing your experience, Little House. That’s a very good point- that its much easier to save $500 for emergencies than take 2 years to pay off $500. I think most of us learn best by learning the hard way, so you’re not alone