A cash advance is a cash withdrawal made using a credit card account. Cash advances are an option afforded to many credit card holders. A cash advance allows you to access currency instead of simply using your card to pay for expenses directly. Cash advances can be a convenient way to access currency to pay for expenses that require cash, but they can also be very costly.
Be Aware of Fees
One reason cash advances can be very costly is that they typically involve paying a substantial cash advance fee. Whenever you sign up for a credit card, read the entire credit card contract and pay special attention to any information about interest rates and fees. If you don't know the cash advance fee associated with the card, look it up before taking a cash advance so that you understand the costs you will incur. According to Bankrate, cash advance costs are often a flat fee of 2 to 4 percent of the amount advanced. So if you take a cash advance of $1,000, you may have to pay $20 to $40 to the bank.
Check the Cash Advance Interest Rate
Another way credit card companies make account holders pay extra for cash advances is by charging different interest rates on credit balances and cash advance balances. The interest rate on cash advances is often higher than normal credit card debt. Considering normal credit card interest rates are often very high, cash advances can be exorbitantly expensive. Check your credit card contract to see what the interest rate on cash advances is before taking a cash advance.
Avoid Cash Advances
Considering the high fees and interest costs of cash advances, it is best to avoid cash advances unless immediate access to cash is a necessity and you have no alternatives. Taking out a cash advance without having the necessary funds to pay it back is dangerous because it can allow interest to accumulate. Do not assume that you will be able to pay the debt later if you don't currently have the money to pay it back. Consider taking out a personal loan or asking a friend or family member to lend you money instead of taking a cash advance.
Pay Off Advances Immediately
If you must take a cash advance, make paying the advance back a financial priority. If you have savings or cash that you can access, use it to pay the debt off as soon as possible. Allowing high interest rates to linger by making minimum payments will result in losing more money over time than paying them off quickly.
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