If You Could Trade Your PTO for a Loan or Extra Cash, Should You?

I'm a firm believer in taking time off work, even though I sometimes struggle to unplug now that I'm a freelancer and no longer get paid time off, better known as PTO. It takes a bit more planning and legwork for me to take time off now, including working more before and after a vacation, so I don't miss needed income.

But back when I was a salaried employee, I absolutely used as much of my PTO as I possibly could. After all, if you have a W-2 job, vacation time is part of your compensation package, and taking time off to rest and recharge (or travel) will make you a happier and healthier person and a better worker.

Unfortunately, a lot of Americans struggle with actually using PTO for its intended purpose. The U.S. Travel Association found that 780 million vacation days went unused in 2018. Since the COVID-19 pandemic canceled many people's planned time away, a few companies have stepped in to help them maximize this compensation in other ways. But is it a good idea to use PTO for anything other than a much-needed rest?

Vacation time as loan collateral

A tiny financial services company in Minnesota is letting people use PTO for a unique purpose. Leech Lake Financial Services, which serves the Leech Lake Band of Ojibwe, is in the unique position of being able to help Americans who have gone underserved by banks. As reported by the Star Tribune, LLFS has a program where personal loan borrowers can use their vacation time as collateral.

Generally, personal loans are unsecured, meaning that if you don't repay the loan, the lender won't have anything to take and sell to recoup its losses. As a result, to get the most favorable rate on a loan, you need to have a pretty strong credit score. Many of LLFS' clients are new to credit building, and if you've got a lower credit score, having collateral for a secured loan can save you money on interest. As LLFS clients repay their loans, their PTO is returned to them.

Vacation time as a source of cash -- or other financial assets

Your unused PTO might also translate to money. Wired reported on a few companies that specialize in working with businesses to help employees convert unused PTO into cash payments. In some cases, employees can have the money put into a retirement account, or use it for travel costs or repaying loans. Cash payments were preferred, however, based on findings from Sorbet, a startup that helps businesses manage these programs and offers them loans to cover cashed-out PTO payments to employees.

Is it a good idea?

I'm of two minds on this topic. On the one hand, if employees can sell PTO and use that money to improve their lives and potentially even stay out of debt as a result, I think it's great. And the program that LLFS is spearheading to help unbanked people avoid predatory lenders by offering favorable loan terms with PTO as collateral is innovative and could do a world of good.

But on the other hand, taking time off is important. Overworked employees are at risk of burnout, and companies should be encouraging their staff members to use PTO for its intended purpose. Perhaps the best solution is to use this method to get extra cash if you have a big bill and no way to pay it other than taking on debt. And if you have a lot of PTO, you might consider cashing out some of it and putting the money into an emergency fund for future unplanned bills.

Getting money from your PTO could be a good way to jump start a healthy savings account balance for future financial needs and goals, but it's important to remember how vital time off is to our well-being.