What to Consider Before Taking a Credit Card Cash Advance
- April 10, 2020
- By: Greenpath Financial Wellness
As we look to manage our personal finances during the global COVID-19 crisis, many of us face uncertainty about how to cover costs for monthly living expenses.
One “quick fix” that may be tempting is a credit card cash advance, especially in the face of unexpected income loss or other emergency situations.
Cash advances can be a convenient and easy way for borrowers to access a lot of money quickly, but it’s important to understand how they work.
Here are some things to consider before taking one out.
Understand What a Credit Card Cash Advance Really Is
A cash advance is not the same as withdrawing cash using a debit card. Think of a it as a loan.
Credit card issuers offer convenient and fast ways to obtain this “loan” by providing card-issued convenience checks. Using this option will involve fees and high interest rates.
Be Aware of Expenses and Fees
Credit card issuers charge expensive interest rates on cash advances. In fact, cash advances are typically the costliest credit card transactions compared to purchases or even balance transfers.
If faced with existing credit card debt, it’s important to note the interest and fees for taking a cash advance on your credit card.
Cash advances typically will have a 3-12% higher APR than standard purchases, and credit card companies also often charge a transaction fee of 2 to 5% on the borrowed amount. This can add a lot of interest and principle, making it even more difficult to pay off in the long run.
Look at the Big Picture
Be sure to consider the bigger picture of your specific financial situation, including existing credit card debt. Make sure you fully understand the implications, especially if you’re enrolled in a debt management plan.
Here at GreenPath, we’ve worked with many people who see the amount they owe on the card balloon after a cash advance, eating into available credit and putting them at risk of additional fees and larger monthly payments.
Borrowers should look at what other alternatives or options are out there, such as getting deferments on other bills like student loans or mortgage payments.
Another option is to look at lower-cost borrowing options, like personal loans through a local credit union or bank. Even an installment can be a smart play and save quite a bit of money in interest in the long run.
While cash advances on credit cards are often widely available, they are something to consider carefully before pulling the trigger.
Considering a Credit Card Cash Advance? Let’s Chat!
Before taking a cash advance from your credit card, reach out to us. We can discuss your options and work together to create a good game plan.