What Is a Cash Advance
If you’re faced with an emergency or unexpected expense, having cash available quickly can be a lifesaver. A cash advance is one option. You can use your card to get a cash advance at an ATM or bank.
Be careful: Cash advances from credit cards can be costly.
To get money in your pocket, you can borrow against your credit limit at a higher interest rate than regular credit card purchases. You will usually have to pay transaction charges.
Mike Sullivan is a personal finance consultant for taking Charge America. This national non-profit credit counseling agency and debt management agency believe that it occurs most often during emergencies.
“But it’s almost always terrible. ”
Understanding exactly what you’re signing up for is the best method to avoid more debt.
What’s a Credit Card Cash Advance?
Cash advances are the same process as withdrawing cash from an ATM with your debit card. The money is drawn from your card, not your checking account. It must be repaid.
Todd Christensen states that it is technically a loan. He is a financial advisor and education manager at money Fit by DRS, a non-profit debt relief agency.
It’s easy to get a cash advance with your credit card. You can withdraw only a set amount, typically between 10% and 40% of your total credit limit.
This loan is not like a traditional payday loan. This type of loan can be repaid indefinitely as long as you pay the minimum amount.
Credit Card Cash Advances: What are the Costs?
Before you apply for a cash advance with a credit card, there are many things you need to consider.
- Interest fees: The bank will charge interest for cash advances. CreditCards.com reports that the average interest rate for cash advances is around 25%.
- Cash advance fees are fees that you pay to withdraw cash from credit cards. Depending on the amount, it is usually 5% or $10.
- ATM fees: There are many fees. They range from $2.50 up to $5, depending on the ATM you use. Transactions made with an ATM outside your bank’s network can result in fees.
Let’s say you withdraw $200 from an ATM using your credit card. This could amount to $15. If you fail to pay your bill on time, you’ll be responsible for $48 in interest.
Repayment for a Cash Advance Balance
If you have credit card debt, a cash advance can be a great option.
Imagine you have $2,000 credit card debt, and your card charges 18% interest. So, you decide to get a $300 cash advance. This could be subject to 25 percent interest.
The minimum payment is usually applied to the balance at a lower interest rate. This would be your $2,000 balance.
Before you take out a cash advance, you should review your credit card agreement.
Alternatives To Credit Card Cash Advances
A cash advance could indicate a more significant financial problem. It might be time to evaluate your spending habits and budgeting.
Sullivan says that cash advances make people more likely to default on credit card debt. High-interest rates characterize cash advances because of this.
Avoid taking out a cash advance from your credit card. Contribute a portion to an emergency fund.
Sullivan says that if you have a good credit rating and can get a cash advance with your card, you might be able to borrow more.
Contact your credit card issuer.
Credit cards can be an excellent way for you to relieve financial stress. If you have trouble paying your credit card bills, contact your credit card issuer immediately.
Many credit card issuers offered flexible payment arrangements during the coronavirus pandemic. These arrangements include waivers of late fees and deferrals of minimum payments.
Credit card payment plans may be available to you. The benefits include lower interest rates, clearly defined repayment plans, and clear repayment terms.
Have a look at personal loans
If you have good credit, a personal loan from a bank or credit union is more affordable than a cash loan for credit cards.
Borrow from family and friends
While it might seem awkward to ask family and friends for a loan with low-interest rates or no interest, it could save you a lot of money in the long term. A 401k loan is a good option if you are responsible and can repay it on time.