Cash advances can seem tempting when the budget is tight and unexpected expenses pop up. While it may seem like the right thing to do at the time, a credit card cash advance will never work in your favor. In fact, it is one of the worst forms of credit available to you. Let’s look at 4 reasons to avoid cash advances.
What is a Cash Advance?
There are a few ways a credit card can issue a cash advance. The most common would be to use your credit card at an ATM and withdraw cash. You can also go into the bank and use your card to withdraw money that way. Your creditor will also likely issue convenience checks for you to use as needed. You can cash the checks and they will be charged against your available credit limit.
The fact that these advances are made so readily available to you should send up some red flags. The credit card company is willing to offer this service to you because it comes with some big perks—for them!
Fees, Fees, and More Fees
In the first place, there will be a flat fee attached to the advance from the credit card company – of course this is in addition to the interest rate. This flat fee could range anywhere from 2%-5%, or even higher in some cases.
But that’s not all. You will also be charged a fee by ATM or bank for withdrawing the cash. And in some instances you will even be charged an additional ATM fee by the credit card company, leaving you with 3 different fees for the same transaction.
Advance Cash Comes with Interest Attached
Cash advances carry a higher interest rate than the regular use of a credit card. So if you swiped your card at the store to buy a pair of shoes or a jacket, the interest rate you would be charged would be considerably lower than if you took out a cash advance and bought the same item. At CreditGUARD we do not recommend taking on any new credit debt, and certainly not at the highest possible interest rate.
The Interest Starts Immediately
Under normal circumstances, when you make a purchase with a credit card you will have a complete billing cycle to pay the charge in full. By doing this you will avoid a finance charge. Cash advances do not come with such a grace period. When you draw the money out of the bank using your credit card, you will begin accumulating interest charges immediately!
Sign of a Bigger Problem
If you still find yourself seeking a cash advance with these drawbacks in mind, it is safe to say there is a bigger financial problem facing you down. The lack of an emergency fund, paying off credit with other credit in an attempt to make ends meet, and the willingness to pay more later for instant gratification now all show serious flaws in financial logic.
If you have been considering a cash advance because you are behind on credit debt and unsure where to turn, call our certified credit counselors at CreditGUARD today. They will discuss the options available to you and help you start working down your debt instead of digging a deeper hole.