A cash advance on your credit card can be convenient, but it will cost you money.
While you might think that a cash advance is the same as taking money from a debit card, cash advances are really loans. They are significantly more expensive than traditional credit card purchases, according to a recent CreditCards.com study of 100 popular cards.
“Cash advances are problematic for three reasons: they charge high interest rates of around 25%, interest starts accruing immediately, and there is usually an upfront cash advance fee, most often 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.
“If you use cash advances frequently, it’s expensive and likely indicates deeper financial distress,” Rossman said. “I know it’s hard to make ends meet, especially during this pandemic, but if you are making regular cash advances you will probably have to find a way to increase your income or reduce your expenses.”
If finances are tight, one solution is to ask a credit card issuer and other lenders for a break, like skipping an authorized payment, lowering your interest rate, or waiving other fees.
“In more normal times, I would suggest 0% balance transfer cards and personal loans, which are usually unsecured, like credit cards, and can charge interest rates as low as average numbers.” Rossman said.
“Lender’s risk aversion to spike in unemployment has made these options harder to qualify, but you could still have a backdoor through your existing financial relationships. “
Also consider nonprofit credit counseling. Check out NFCC.org for recommendations on organizations that can provide advice, consolidate debt, and lower interest rates, all for one low fee.