Do Cash Advances make sense? good Idea?

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Do Cash Advances make sense? good Idea?

Rarely. They can provide quick cash, however, the high interest and fees will cost you dearly. Less expensive alternatives exist.

Written by Anisha Sekar Anisha is a former personal finance journalist for NerdWallet. She has worked for Silicon Valley startups as well as in the public sector and has contributed to publications like Technorati as well as Women Grow Business. She completed her studies in applied mathematics and economics in Brown University.

7 October 2022

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Every now and then you might have to pay cash and holding nothing but credit cards. You might be at the cash-only café or perhaps your taxi driver doesn’t accept credit cards. Whatever the reason, a cash advance cash advance may seem like a good alternative. A cash advance is a short-term loan on your account with a credit card. It’s an easy operation that can result in expensive results. In the majority of cases, it’s a terrible idea.

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The problem is with cash advances.

The process of getting a cash advance can be as easy as going to a bank teller , or an ATM and presenting your credit card, and leaving with cash. It sounds ideal but cash advances are more likely to have fees and/or more interest rates. Here’s a breakdown of the main differences between cash advances and a regular purchase:

Cash advance fee: As the name implies it’s a one-time fee charged when you make your advance. It usually ranges between 3% and 5% of the amount. For example, if you make the amount of $200 in cash, the fee of between $6 and $10 will be added to the balance of your account.

Higher interest rates: Some cards charge a higher rate for cash advances than regular purchases.

No grace period The credit card typically gives you a of at least 20 days to settle your purchase before you’re charged interest. Cash advances however, start to accrue interest on the first day.

Lower credit limit: Some credit cards offer a cash advance credit limit, which is lower than the credit limit overall.

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What are some alternatives to cash advances?

There are many more . Here are some that might be more relevant to you:

Promotions offered by your card’s issuer: In recent times, you can avail some , including the option to convert your credit to the form of an installment loan without the need for a new loan application. You’ll still be charged interest if you make use of this option however, you may receive a lower rate.

An overdraft on your account with a checking account could cost you between $25 and $35 if your account balance goes negative but you’ve authorized your bank to approve the withdrawal in any case. You are able to opt-out of this, of course but it’s a good option for short-term funds. Be aware, however- some banks also charge extra overdraft fees.

The early withdrawal of a Certificate of Deposit (CD) can be another option for those who need cash immediately. However, CDs are meant to be used for deposits over a long period of time, which means you might face or have your CD cancelled.

A This alternative is typically more complicated than other options, as it involves you going to a bank and applying for the loan. The interest rates for 24-month personal loans are less than those on most credit cards, but the rates on short-term loans of payday lending companies tend to be higher.

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When do cash advances make sense?

Cash advances rarely make sense.

In comparison to the options above, you might very likely consider a cash-back on you credit card might be the most affordable alternative once you crunch the numbers (though you might want to think about opening a bank account with ). However, it’s probably not going to be a free option. If you must get a cash advance, it only makes sense to take it out when you know you’ll have enough money to pay it off as fast as you can. In the event that you don’t, the interest can pile up with every passing day.

The balance may tip favor of a cash advance in the event that you’re using a debit card that does not charge a charge for cash advances. In that situation, you’ll need to worry about the interest payments.

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Even better: Avoid needing an advance

Make an emergency fund to cover unexpected expenses. Consider setting up automatic deductions to transfer funds from your checking account to an “rainy day” account, or look at a few ways to earn extra money in the background.

If you’re considering cash advances solely because you’ve forgotten to carry cash, then it’s a good idea to research debit cards that come with . So, you’ll be able to use the nearest ATM without being charged an out-of-network fee.

About the author: Anisha Sekar is a former personal finance writer at NerdWallet. She worked for Silicon Valley startups and in the public sector. She was a mathematician who studied applied economics in Brown University.

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