This is an article “Is Cash Advance Really Necessary?” by Marc Primo
For those who need a quick fix of cash, your credit card gets you short term loans called a cash advance. But the question lies on whether you need it or not? Short answer: if you need cash on hand for something extremely necessary, then go for it. Otherwise, don’t and here’s why.
Understanding cash advances
Keeping a good credit score legitimizes you to have a credit limit where cash advances are taken from. It’s money that you owe and is not part of the amount stated on your bank account. Instead, it’s a quick loan option you can avail of depending on the balance stated on your credit limit. Now even if your credit limit is high, your loanable cash advance does not necessarily mean you can borrow that same exact amount. For most people, cash advance limits are much lower and you have to pay it back with interest. Think of it as a purchase where cash is used instead of your credit card and unlike the latter wherein you don’t get any interest if you pay on time, cash advances will incur interest the moment you take money out of the bank.
While a cash advance may seem more costly than just using your credit card, it’s still better than opting for a payday loan where you are instantly charged by your next salary while you can go for a long-term arrangement with a cash advance. Other forms of cash advances are foreign currency purchases, gift cards, electronic transfers, and mortgage payments.
How can you get a cash advance?
Cash advances are one of the easiest and quickest ways to get cash on hand when you need them. Via your credit card, you can simply go to your an ATM machine, enter your PIN-code and punch in the amount you want to borrow as a cash advance. You may be asked if you agree to pay a minimal ATM fee if you avail from another bank’s ATM machine so it’s best to look for one that’s from your bank. This amount is different from the cash advance fee and interest rate, and if you accept, you instantly get your cash. What you also need to consider is that ATM machines have limits that you can withdraw each day and this is different from your cash advance limit so plan early if you need an extra amount of cash.
You can also get a cash advance directly at your bank and all you’ll need is a valid ID and your credit card. Take note that banks may also charge you with a minimal fee on top of your other cash advance fees as well.
Lastly, you may receive it via convenience checks that come with your credit card when it is delivered to you. Filling up the check may even get you a higher cash advance rate than the other methods.
When is a cash advance necessary?
Here’s where we get to the most important part of the discussion. Understanding the math and entailing costs of a cash advance will determine if you really need to avail of this alternative or simply look for another deal. Cash advance garners a lot of high fees and stretches over time, which can range from 3 to 5% of the cash amount or a flat-fee of 5 to 10 dollars.
You also get a higher annual percentage rate than our regular credit card purchases which all the more means you’re going to have to pay off the cash advance as soon as possible if you don’t want to take a nosedive into debt. ATM charges also range from 3 to 5 dollars per transaction and lastly, your cash advance balance comes last when your bank receives your payments. This means your cash advances will continue to incur interest until you are able to pay off your normal credit balance first which can be a nightmare if you have a high balance to start with.
Considering all of these, cash advances are convenient ways to get fast money but make sure that you can pay it off just as quickly. You should only get one as a last option for emergencies. Otherwise, you may just be putting yourself and your credit score in deep trouble. Make sure you don’t make a habit out of it.