It does sound tempting to get cash from your credit card. However, a cash advance is not like withdrawing money from your debit card. Cash advances on a credit card are expensive and may put you into a debt trap. You can take a cash advance by using the convenience check supplied by the issuer or from an ATM through your credit card. It is often said that you should avoid cash advances on a credit card, here are some common reasons why this is recommended.
Credit card advances are expensive
This is one of the most expensive types of credit card transactions since it has huge costs associated with the same. Firstly, you pay a cash advance fee, which could be a minimum fee or a percentage of the amount of the advance. The fees usually range from two to five percent of the cash advance and most companies charge on the higher end. Secondly and finally, you will be charged an ATM fee which also depends on the ATM you use.
High-interest rate
Cash advances carry a higher interest rate than the rate of interest you pay for purchases. Even if you pay the amount within time, you will end up paying a higher interest on a cash advance. If you delay the payment, you will pay more interest.
You Might Also Like: Here Are A Few Things To Know About Credit Score
No grace period
Cash advances on a credit card do not have a grace period. You will not get an entire billing cycle to pay the amount in full. You will be charged interest from the date of the transaction. If you want to minimize the amount of interest payable, pay the advance at the earliest.
There could be money management issues
If you take cash advances often, you will need to look at the bigger picture. It is possible that you might be struggling with money management issues. In such cases, you will find it difficult to repay the cash advance. It is best for you to look for alternatives such as a small loan from a friend or from the bank. You can ask for a payday advance from your employer or ask for an extension in due date from the creditors.
If there is a need to take a cash advance on your credit card, you need to consider your financial situation. Evaluate why you need to take a cash advance. If you are currently unable to meet your obligations, will you be able to pay the credit card bills? People usually take cash advances when they are in dire need of cash and then, end up defaulting on their credit card. This is why the interest rates on the advances are high. If you take a cash advance, you may prefer to pay it before the credit card payment. This means you will fall behind on your credit card payments. You can apply for a cash advance in case of an emergency or in times of financial emergencies. However, if you need to take a cash advance to meet your daily expenses, you need to evaluate your spending patterns. A cash advance may be the easiest way to raise funds but it is not an ideal option.
Keep yourself updated with the latest on Credit Cards. Like us on Facebook and follow us on Twitter for more on Investments.
