When you’re low on cash, getting a cash advance from your credit card might seem like a good solution. And it’s definitely a fast, convenient way to acquire cash. But cash advances have risks and should only be used rarely if it all. Let’s look at the risks of credit card cash advances.
Up-Front Fees
Getting a cash advance from your credit card isn’t a free service. There’s an automatic fee applied. It’s usually less than $10 if you borrow $200 or less. For higher amounts, the fee is generally 5% of the total amount you borrow. If you’re already low on cash, the fee for taking out a cash advance automatically sets you back even further.
Interest Accrues Immediately
When you use a credit card to pay for goods or services, you have a grace period of about 30 days to pay off those purchases before they begin to accrue interest. That’s not the case with cash advances. The credit card company starts charging interest as soon as you with draw the cash. And it gets worse. The interest rate is higher than your interest rate for purchases, usually topping out at 25%.
Red Flag for Creditors
Creditors may view using cash advances as a red flag. It can make borrowers appear financially unstable. Overusing cash advances can make it harder to receive credit limit increases, reasonable interest rates and could even cause creditors to close accounts without notice.
If you must take out a cash advance, withdraw only as much as you need and make every effort to pay it back quickly.
Credit Score Effects
Taking out a cash advance will affect your credit utilization rate — or the amount of total credit you have available. Creditors generally look for a utilization rate of 30% or less when considering offering new credit or a credit limit increase. Taking out a cash advance, especially for a significant amount, can cause your utilization rate to spike, which may result in a credit score drop. A lower credit score is one of the risks of credit card cash advances.
Consider Alternatives
Taking out a credit card cash advance shouldn’t be an impulsive decision. Although it can feel just like making a withdrawal from an ATM, you must remember it’s not your money. It’s a loan you’ll need to pay back and the longer it takes, the more it will cost you.
A credit card cash advance should be your last resort, not your go-to solution. Other options to consider include:
- Getting a personal loan from a bank or credit union
- Asking a trusted friend or family member to borrow money
- Selling assets you don’t use, like jewelry or sports equipment
- Charging the purchase on the card instead
Struggling with Credit Card Debt?
A debt management plan can help:
- Consolidate monthly payments
- Lower interest rates
- Eliminate collection calls
Related Posts
Learn Your Debt Consolidation Options
Juggling multiple credit card payments every month is stressful. You can set up auto-pay or set calendar reminders, but there’s still a chance you’ll miss a payment or not pay enough to cover the minimum due. Plus, multiple payments make the budgeting process more complex. Consolidating your credit card debt so you have just one […]
Learn How Debt Settlement Affects Your Credit Score
Debt settlement can be an appealing option to consumers struggling with high levels of credit card debt. Because it allows borrowers to pay less than the total amount they owe, they think they’re getting a better deal than if they had to pay off the debt in full. But what many don’t realize is that […]
Tax Refund Advance: What You Need to Know
Many consumers plan to receive a tax refund every year. They use it for a variety of things, including paying down high-interest debt. So it’s no surprise that most would rather not wait too long to receive those funds. That’s were tax refund advance loans come in. These loans allow tax filers almost immediate access […]
