Credit card issuers offer cash advances a way to get money from your available credit. While it sounds like a convenient way to gain access to money, taking out a cash advance on your credit card is risky, expensive, and carries the potential for debt if you don’t get the advance amount back quickly Pay. Knowing that before you take your credit card out at the ATM can help you make better decisions about how to use a credit card cash advance – if you use one at all.
Four Costs of a Cash Advance
Cash advances come with a cash advance fee that is usually around 5% of the advance, with a minimum of $ 10. Not only that, cash advances have higher interest rates than regular purchases and even balance transfers.
Most credit cards do not provide a grace period for cash advances means interest starts accruing as soon as you take the money from the cash machine. And don’t forget about the ATM fee the bank charges you if you don’t have a credit card in that bank’s network.
Those four costs can make cash advances very expensive, but still less expensive than a number of alternatives, such as payday loans. Managing cash advance costs is the key.
Smart Ways to Handle a Cash Advance
While credit card cash advances are generally a bad idea, there may be a time when you need access to money and have no better options. If you need to take a cash advance on your credit card, follow these tips to reduce the costs and the risk of getting into debt.
Read your credit card to understand the terms and costs. You must know the one-time cash advance fee that you pay and the APR that will be applied to your cash advance balance. If you don’t understand something, call a customer service representative and ask.
Use a cash advance for real emergencies that you cannot pay with your credit card. Avoid taking out a cash advance to pay for ordinary everyday items such as groceries and gas. Set a goal to build an emergency fund so you don’t have to count on a cash advance in the future.
Know your advance limit; it’s probably less than your credit limit. You can check your limit on your online credit card account or by calling the automated customer service number on the back of your credit card. Exceeding your advance in cash limit can result in more than the limit costs and a higher interest.
Take only what you need, nothing more. Resist the temptation to withdraw just a little more so you need some extra money. That little bit extra makes it even more difficult to repay the advance. But try to take just one cash advance large enough to cover your costs to avoid another cash advance and ATM costs.
Use a credit card with a balance of zero. If you have multiple types of balances on a credit card – purchases, cash advance, balance transfer – a payment above the minimum comes to the balance higher rate. Meanwhile, the other balance, such as purchases, does not decrease and interest accumulates instead. This makes it harder to repay the cash advance balance.
Avoid purchases until the deposit is refunded, for the same reason as discussed above. You should also avoid making credit card purchases until you can afford a credit card balance.
Cash Advance Alternatives
The need for quick money is often a symptom of a larger money management problem, such as spending too much money or the lack of an emergency fund. In cases such as these, repayment of an advance in cash can take a long time and costs a lot of money.
Before you decide to take out a cash advance, take a look at a number of alternatives.
- Small loan from your bank or credit union
- Small loan from a family member or friend
- Payday advance from your employer
- Expiration date extension of your creditors
- Consumer credit counseling
- Local emergency deprivation programs (usually offered by your local human resource department)
Cash Advance-Proof your finances
Because of the costs, you want to avoid the need to take out a cash advance. Start building an emergency fund. Contribute as much as you can in the direction of savings until you have built a hefty emergency fund. Adjust your spending habits to eliminate the debt and get your finances back on track. Finally, minimize your credit card debts by charging only what you can afford.