What is a cash advance on a credit card, you ask?
If you are one of those who are still wondering about this or thinking whether you should do it, then you have to read this post.
What Is A Cash Advance On A Credit Card | Don’t Do It
In This Article:
- Who can take a cash advance on a credit card?
- What happens when you take a cash advance on a credit card?
- When should you not take a cash advance on a credit card?
- Where can you get a cash advance on a credit card?
- Why shouldn’t you take a cash advance on a credit card?
- How do you avoid taking out a cash advance on your credit card?
Who can Take a Cash Advance on a Credit Card?
Many credit card companies offer cash advance to their cardholders. In fact, one of the most popular types of cash advance is through a credit card.
You can take a cash advance on your credit card as long as it has the cash advance feature and is enabled on your account. You can then withdraw a specific amount from an automated teller machine (ATM) for cash.
Just be sure to take note of your cash advance limit by checking your credit card statement, logging on to your online bank account or contacting your bank’s customer service
However, it is worth noting that most cash advances are offered by credit card companies with high-interest rates and fees. That’s the high price you have to pay for a fast approval and release of cash.
What Happens when you Take a Cash Advance on a Credit Card?
Most credit card companies charge about 16% in interest. This is higher by 8.54% as compared to the average annual percent rate (APR) in purchases.
Apart from these outrageous interest rates, most credit card companies charge a fee of up to 6% or about $10 per cash advance transaction. You may also be charged a small fee for using the ATM from a different bank.
A cash advance from a credit card does not have a grace period. Therefore, the interest continues to accumulate as soon as the transaction is finished.
For example, you take out a cash advance worth $1,000 with your credit card on the first day of your card’s billing cycle. You will immediately be charged a credit card cash advance fee that is 5% of $1,000, which is $50. Therefore, you already owe a total of $1,050. That’s assuming you withdraw from an ATM that is the same with your bank.
Currently, the average APR is at 16%. So for each day that passes, about 0.0004% of cash credit interest rate will be charged on top of the amount you already owe. It may seem like a small amount until it accumulates.
Also, your cash advance balance is different from your purchase balance. So your monthly payments are divided among the balances because their interest rates are different.
When should you not Take a Cash Advance on a Credit Card?
Don’t take out a cash advance on your credit card if you’re just going to spend it for your wants or to pay off a previous debt. It will only put you in a more difficult financial situation than where you already are.
Moreover, it is worth noting that certain transactions like wire transfers, legal gambling purchases, money orders, and bail bonds are often considered as a cash advance if you pay for it via credit card.
Where can you Get a Cash Advance on a Credit Card?
If you are in dire need of cash, you can go to the nearest ATM of your bank. Or if it’s for an emergency, you can use an ATM from a different bank. However, that will incur a small fee.
Make sure you already have a PIN assigned prior to taking out a cash advance on your credit card.
Why shouldn’t you Take a Cash Advance on a Credit Card?
As much as possible, do not take a cash advance on your credit card due to the following reasons:
- There’s no grace period, therefore, if not paid immediately, the interest continues to accumulate
- The interest rate is charged as soon as you withdraw
- There’s a credit card cash advance fee of 5 to 6% of the amount withdrawn per transaction
- Since a cash advance from a credit card is a convenient way to obtain cash, credit card companies charge outrageous interest rates of up to 25%
- It creates a habit of relying on a credit card for quick cash
How do you Avoid Taking Out a Cash Advance on your Credit Card?
The first and the most effective way to avoid taking out a cash advance on your credit card is to set up an emergency fund and use it only when needed. That way, you won’t have to turn to your credit card whenever you need cash.
Secondly, always bring cash. Avoid using your credit card as much as possible.
Next is to create a simple financial budget you can follow and stick to. You can also make use of budgeting apps. If you find budgeting complicated, make it as easy for you as possible so you can maintain it.
Lastly, if you are really in need of cash, perhaps you can consider other borrowing options. This includes a personal loan from your bank. Or perhaps you can also borrow from a family or friend. Just make sure to pay it back as soon as you can.
Check out this video from The Audiopedia to know more about what is a cash advance on a credit card:
There’s a huge price to pay when you take a cash advance on your credit card. Sure it can get you cash as soon as you need it.
However, if you don’t pay as soon as possible, you’ll end up needing more money than before because of the compounded interest. Therefore, it’s better and easier to set up an emergency fund. That way, you will never have to borrow cash from your credit card again.
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