A cash advance on your credit card can be convenient, but it will cost you.
While you might think that an advance is the same as withdrawing money from a debit card, advances are actually loans. According to a recent study by CreditCards.com of over 100 popular cards, they are significantly more expensive than typical credit card purchases.
“Cash advances are problematic for three reasons: they charge high interest rates of around 25%, interest accrues instantly, and there is usually a cash advance payment, usually 10 or 5%, whichever is greater,” said Ted Rossman. an industry analyst at CreditCards.com.
Cash advances aren’t as expensive or risky as payday loans or auto title loans, but they should only be reserved for extreme circumstances, Rossman said.
Used too often, they can lead to credit card debt.
“Using cash advances frequently is expensive and likely indicates a deeper financial emergency,” Rossman said. “I know it’s hard to make ends meet, especially during this pandemic, but if you routinely make cash advances you will likely need to find a way to increase your income or reduce your expenses.”
When finances are tight, one solution is to ask a credit card issuer and other lenders to take a break; For example, skip a payment with approval, lower your interest rate, or waive other fees.
“In more normal times, I’d suggest 0% prepaid transfer cards and personal loans, which are usually unsecured like credit cards and can charge mid-single-digit interest rates,” Rossman said.
“Lenders’ risk aversion with rising unemployment has made it more difficult to qualify for these options, but you may still have a back door to your existing financial relationships.”
Also, consider nonprofit loan counseling. NFCC.org provides recommendations on organizations that can advise you, consolidate debt, lower interest rates, all at low fees.