subject: Is It Smart to Take a Credit Card Cash Advance? [print this page] Is It Smart to Take a Credit Card Cash Advance?
Cash advance is an option for credit card holders. They can borrow actual cash against their limit in credit cards. Generally, a small percentage of the total limit is the limit for cash advances. The statements issued by banks generally have these two limits specified. Taking a cash advance on credit card is very easy. All you need to do is to use the credit card at any ATM. Cash advance over the limit may be treated in a similar manner to a purchase over the credit limit.
Why Need Cash Advance?
Generally everywhere, debit or credit cards are acceptable. But there are certain vendors that may need cash payments. Sometimes, you may need the cash to pay off a debt. Sometimes there is a cash emergency like payment for medical emergencies, child education, veterinarian or dentist fees etc. Other kinds of emergencies can also call for a need for cash advances. The question is whether is it smart to take out such credit card cash advances?
Cash Advance A Bad Idea
Credit card cash advances are like small personal loans. They are very risky and expensive. They come at a very high rate. Also, there is a potential for debt, if you do not pay off the cash advance quickly. For every cash advance you make, a fee would be charged by the credit card issuer. The fee charge could be in the range of 1% to 4%. Also, the ATM from where you would withdraw cash would also charge some fee for processing your request. And that is just the fees. The interest would be another cost if you don't pay off the loan by the end of the month. That could be even worse in case of cash advances where there would not be any grace period that means your interest would start accruing as soon as you take the advance.
The interest rates on cash advances are very high. Some banks may charge a flat rate instead of a percentage. That's even worse if you take only a small amount of cash advance. The cash advance annual percentage rate (APR) would be very high. It will be more than the regular APR on credit cards. Interest on cash advances can be as high as 23% for unsecured credit cards.
Managing Cash Advances
Cash advances are not as bad as payday loans. If you are careful, you can manage these cash advances so that you do not get into high debts. Before you take a cash advance, read your credit card agreements to understand the cash advance limit, fees and interest that would be applicable. Take cash advances for only dire emergencies. Use a loan calculator to determine your total debt and the period in which you will be able to pay it off. Also, avoid any purchases till you pay off your cash advance.
In summary, credit card cash advances are not a very good option, but in case you really need them, you must manage them efficiently. Ensure that you pay it off soon or else the cost would be higher than your benefits.
