Are you working on a tight budget? Do you need immediate cash to supplement what you currently have in your savings account? Then perhaps you are considering a cash advance using your credit card.
A credit card cash advance is a feature in your credit card. It allows you to borrow cash against your card’s credit limit. The downside, however, is that you will have to deal with fees and interest rates.
But there is no doubt that your credit card can give you instant cash in your time of need. But is it worth it? Do the pros of borrowing cash from credit card outweigh the cons?
Continue reading below as we attempt to answer these pressing questions.
The Lowdown on Credit Card Cash Advance
As we mentioned above, a credit card cash advance is like borrowing money against your credit limit. It is similar to withdrawing money using your ATM card. The difference, however, is that the cash will come from your credit limit.
This means it will come with a corresponding interest that you have to pay.
By inserting your credit card into an ATM, you can punch in your PIN to take out the cash advance. When it comes to the amount of cash that you can withdraw, it depends on your cash advance limit. Sometimes, this limit is lower than your credit limit.
You can somewhat compare a cash advance to a short-term loan. They both come with certain fees and an interest rate.
You can take out most credit card cash advances through the ATM or convenience checks. But these are not the only methods available. You can also secure cash advances through wire transfers.
You may also do the same via money orders and traveler’s checks. You can also pull off a credit card cash advance through bail bonds and legal gambling purchases.
When Should You Get One?
Now you may be wondering when is the best time to consider a credit card cash advance. The most common scenario is when you need immediate money but do not have enough cash on hand.
This normally happens when an emergency comes up. A survey revealed that only 39% of Americans can financially cover a medical emergency worth $1,000.
A cash advance also helps when you need to pay a one-time expense and you run out of cash in your savings account.
A credit card cash advance does come with advantages. Let’s take a look at some of them below:
You can acquire a credit card cash advance with relative ease. Most of the time, all you need are your credit card and an ATM. It is one of the most convenient options to secure instant cash.
It is also a better alternative to a short-term payday loan. Yes, a credit card cash advance does come with its own set of fees and interest. However, a payday loan usually comes with much a much higher interest rate.
It is also useful when you are paying in an establishment but their credit card system is down. Since they can only accept cash at the moment, a cash advance via the credit card is the answer.
Banks impose a cap to keep you from overspending. In most cases, the cap is equivalent to only a small percentage of your card’s credit limit.
We already mentioned earlier that securing a cash advance through your credit card will cost you some money. Let’s take a closer look at this matter and the other disadvantages it presents:
You need to understand that the fees of a cash advance are unavoidable. You will need to pay them one way or another. Generally, the fees will cost you somewhere between 2% and 5% of the total amount of the cash advance.
When it comes to the interest rate, expect it to be high. Moreover, there is no grace period when it comes to the interest rate. This means it will take effect and accumulate the moment you secure the cash.
A cash advance may also affect your credit score negatively. A cash advance may increase your credit utilization rate. A lower credit score will affect your chances of securing a loan in the future.
There is also a risk involving security. If you lose your money to thieves or leave the money somewhere, you may never recover it.
When it comes to paying the cash advance, your minimum payments may not be enough. This is because the costs of a cash advance accumulate fast. This is evident when you have additional balances that you also need to settle.
Cash advances are not that flexible. Banks will not count them as reward-earning transactions.
As you can see, the cons of securing cash off credit card deals outweigh the pros. A credit card cash advance can give you the money you need at the moment. But you will likely get the funds expensively.
Cash from a credit card can help you cover unexpected expenses. But you need to treat it as your last resort. Before pulling the trigger, take a step back to re-examine your options.
Review your finances and cash flow. Determine if you can pay the hefty fees and interest rate. Will the fees only put you in a deeper debt hole?
If you are going for a credit card cash advance, make sure to use it sparingly. Use it only during emergencies as much as possible. But if you’re going to use it often enough to tow you until payday, then perhaps you need to revisit your finances.
Additionally, you may also look into other alternatives that come with more manageable fees. There are personal loans and peer-to-peer loans. You may also try borrowing from trusted friends and relatives.
Improve Your Financial Management Skills
Now that you know the fundamentals of a credit card cash advance, you can make a wiser choice depending on your current financial situation. When it comes to managing your finances, you need to continue learning by reading various resources.
We invite you to check our different articles on personal finance. We discuss topics on finance management, investments, and other money-related subjects.