Payday loans don't get much respect. Unless you need one.

They've long been a quick, costly – and controversial – form of borrowing.

Consumer groups say the short-term loans – which typically carry annual percentage rates of 400 percent or more – are predatory. The payday loan industry, however, says they're a lifesaver for cash-strapped individuals, especially in a choppy economy.

Last week, a bill to raise the limits on payday loans – from $300 to $500 – passed the state Assembly and headed to the Senate.

The bill's author, Assemblyman Charles Calderon, D-Whittier, says California's $300 limit is one of the lowest in the country and inadequate for today's consumers. It doesn't help those who need quick financial help, he says, whether "to pay your student fees or keep your phone on because you're looking for a job."

Payday loans, he says, fill a niche: "providing money for people who need it and can't get it anywhere else, short of committing a crime."

But critics see it differently. According to the Center for Responsible Lending, payday loans often lead to "financial quicksand," sucking consumers into a repeating cycle of high-cost, quick-turn loans.

Payday lending is big business in California, where there are 2,144 licensed outlets. Last year, 1.6 million Californians took out $3.1 billion in payday loans, according to the state Department of Corporations.

Regardless of Assembly Bill 1158's fate, there are alternatives to payday loans. Here's a look:

Paycheck advance

Some companies let employees facing financial hardship get their paycheck early. Because it's not technically a loan, there usually isn't any interest or fee charged. Ask your boss or human resources office.

Friends and family

Borrowing from friends or relatives can be a short-term solution, depending on the terms and their generosity. If you're fortunate enough, the "Bank of Mom and Dad" can tide you over. And maybe won't even charge you interest.

Credit card cash

Normally, getting a cash advance using your credit card is considered a financial no-no, due to fees and high interest rates. Typically, you'll get charged a flat fee, say $10, plus interest rates of 23 percent to 25 percent (APR), said Bill Hardekopf, CEO of card-rating company LowCards.com.

But while those rates are high, and have been creeping up, they're still relatively cheap compared with a payday loan.

'Small-dollar' loans

Some banks or credit unions offer short-term loans that are tied to a mandatory savings account.

For instance, Golden 1's "LifeLine Advance" gives out loans up to $300, but puts 15 percent of the amount directly into a new savings account.

If you borrow $300, for instance, $45 is automatically deposited into your savings account and can't be touched until the loan is paid back, usually within 35 days. (There's a onetime $15 setup fee; if not repaid in 35 days, monthly fees are $1.25 per $100.)

They're aimed at people with "short-term cash needs" who don't have a credit card or can't qualify for a regular consumer loan.

"Our goal is to help them establish savings, so they can break the cycle of payday lending," said Golden 1 President and CEO Donna Bland.

For details: www.golden1.com

Military help

For years, military enlistees were easy targets for payday lenders, whose offices often clustered near military bases. According to a recent study by the Financial Industry Regulatory Authority, or FINRA, more than one in five members of the military had used high-cost borrowing, such as payday or auto title loans. And among younger enlisted personnel, the number jumped even higher, to 32 percent.

Alarmed by the high usage of these financially risky loans, the federal government in 2007 capped interest rates at 36 percent on payday loans to military personnel and their families. Sixteen states (not including California) have passed similar ceilings.

Gerri Walsh, VP of investor education for FINRA, which oversees the military-focused financial website saveandinvest.org, says military members should first contact their base bank or credit union, which typically have the best loan rates.

Other options: "family readiness" groups that offer favorable, short-term loans or emergency grants. Also, many military bases have "personal financial managers" who provide money-management and debt counseling.

Military enlistees "often worry their commander will find out, but those counseling sessions are confidential," said Walsh. "A service member should not be afraid to seek out the help that exists for them."

Debt counseling

Needing a payday loan is generally a symptom of a more serious ailment: chronic money troubles. Consider working with a non-profit debt counseling agency. Credit counselors – for free or a small fee – can help set up a budget, work with creditors and set up a debt repayment plan. To find a reliable nonprofit near you, contact ClearPoint Credit Counseling Solutions, which has nine California offices, at www.clearpointcreditcounseling solutions.org or call (877) 422-9045. Another resource: the National Foundation for Credit Counseling. It's at www.nfcc.org or call (800) 388-2227.

Get back on track

Many people get a payday loan, thinking it'll be a one-time emergency, but get hooked, said Gail Cunningham, spokeswoman for the nonprofit National Foundation for Credit Counseling.

Instead, she says, know your income and track your spending; put bill-paying dates on a calendar; contact creditors to see about reducing or extending payments.

Above all, set aside a "rainy-day fund," to see you through financial shortfalls. "Start by taking 10 percent of each paycheck and putting it into a savings account," Cunningham suggests. "At the end of a year, you'll have a little more than one month's income socked away, enough to sustain you through most short-term emergencies."

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Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968.

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