In times of having low on cash, the option to get cash from your credit card is indeed tempting. But having a cash advance is not the same as withdrawing some cash from your debit card. Reality speaking, a credit card debt is what you will have if you will get credit card cash advances since these are loans and expensive too.
Some ways your credit card issuer makes cash available to you are: using one of the card issuer-supplied convenience checks, using your credit card to withdraw cash from an ATM, and using your credit card overdraft protection. Unless you are in an extreme emergency situation, you should avoid taking out a cash advance from your credit limit although it sounds so easy. You should make sure that you can repay your debt as quickly as possible before using your credit card advance.
Among all the types of credit card transactions, cash advances are one of the most expensive. That is because compared to other purchases, it is priced differently including balance transfers. Below are some things you should consider before deciding to get a cash advance.
Fees for Cash Advances: A percentage of the amount of the cash advance or a minimum flat rate is charged as a cash advance fee. For example, whichever is greater, the credit card terms may choose the cash advance fee either $5 or 5 percent. The cash advance fee will be $7.50 on a $150 cash and that is 5% of the advance amount.
Most credit cards charge on the higher end but cash advance fees typically range between two to five percent of the cash advance amount.
ATM Fees: An ATM fee between $2 and $5 will be charged to you in addition to the cash advance fees, the amount depends on which bank’s ATM you are using. And an ATM fee may be charged by both your credit card issuer and the ATM operator.
No Grace Period: Typically on cash advances, a grace period is not offered by most credit cards. This means that for you to pay off your full due amount, you will not be given a full billing cycle and you should comply with this to avoid a finance charge. From the date the transaction clears your credit card account, interest starts accruing. To minimize the interest that you are going to pay, you should not wait until you will receive your bill in the mail or your inbox before paying the balance off. Better pay it off as soon as possible especially if that’s the only balance in your credit card.
Interest is higher: Compared to the rate for purchases and or balance transfers, cash advances almost always have a higher interest rate. For example, if you have to pay $500 for your cash advance and $500 for a plane ticket and let’s assume that you paid each balance in the same amount of time, you will still pay more interest on your $500 cash advance. You will accrue or consequently have to pay more interest if it takes you longer to pay off your cash advance.
Rules for Payment Allocation: Balances with the highest interest rate are required to have the minimum payment, this was required by the federal law to credit card issuers. But, credit card issuers can apply whatever they want when it comes to anything above the minimum. Often, paying off a cash balance will take longer since payments above the minimum are applied to the lowest interest rate balance. And this simply means that the longer you will pay, the more you pay in the future too.
It is likely that you have a pretty big financial problem if you need to take out a cash advance. Ideally, to meet all your financial obligations, you should have enough income. Defaulting on the credit card debt is more likely for people who take out cash advances than people who don’t. That is one of the reasons why the interest of cash advances if higher.
So, take a close look at your budget and spending and make some efforts to align the two if you find yourself frequently using cash advances to pay for things.
LLOYD J CAZES CPA