The Earned Income Tax Credit aids millions of Americans each year, lifting many out of poverty – but spacing it out in multiple payments could significantly reduce recipients’ dependence on payday loans and borrowing from friends and family, suggests a recent University of Illinois study of a pilot program in Chicago.
Study participants who took half their estimated EITC in four periodic payments between May and December cut their number of payday loans roughly in half by the end of the study in spring 2015. And though their monthly borrowing from friends and family rose early in the study, it also declined by about half from that peak to the end of the study.
“When it comes to making ends meet, there are times when things come up and people on limited budgets need access to cash,” said Ruby Mendenhall, the study’s lead author and a U. of I. professor of sociology and of African American studies. The study suggested that with extra money in hand at points throughout the year, these participants were better able to meet those needs, Mendenhall said.