The option to get cash from a credit card may seem tempting, especially if you’re low on funds. However, a cash advance is not the same as withdrawing money from your bank account. In reality, a cash advance is a loan that can very easily lead to high credit card debt.
Before you apply for a cash advance, it’s important you understand the how it can impact you in the long run. Typically, cash advances are accompanied by fees and exorbitant interest rates that will make it difficult to pay back – making debt relief feel near impossible.
What are Cash Advances?
There are three types of cash advances. They are credit card cash advances, merchant cash advances, and payday loans. Of those three, most individuals are more familiar with credit card cash advances.
Credit Card Cash Advances
A cash advance is a service some credit card companies have that allows a customer to withdraw cash against their credit limit. They are quick and easy which may seem tempting, but it is one of the most expensive transactions you can make on your credit card.
Merchant Cash Advances
A merchant cash advance refers to money given to a business or merchant with low credit by banks or other lenders. The rate and cash advance are determined by other factors such as how much money the business receives through online sales. These cash advances are for businesses and merchants, not regular consumers.
Payday loans are another form of cash advance. They are short term loans that must be paid back by the next payday. When the payday loan is taken out, the lender usually charges $15 per $100 with an interest of over 100%. More than 80% of payday loans are pushed back with higher interest in 30 days.
Why Should You Avoid Cash Advances?
The fee for a cash advance is usually high
The typical fee for a cash advance is 5%. However, they also generally have a minimum fee of $10. This means that you could potentially pay more than 5% on a credit card cash advance because of its fees. You will end up spending more on the cash advance than you would have paid in cash. If you can avoid cash advances, you should. Most importantly, they should not be used frequently due to the fees and interest.
Cash advances have high interest
When you take out a cash advance, you are required to pay interest. The average interest rate for taking out a credit card advance is 23.68%. To put this in perspective, the average interest on a new credit card is 19.24%. It is lower for existing accounts, with the interest coming to 14.14% on average.
There is no grace period
With most cash advances, you start paying interest immediately. Not only is the interest rate higher, but it will also cost more because of how quickly the interest begins. You can do your best to avoid this by paying the cash advance off as quickly as possible. However, chances are you probably won’t have enough cash to do so right away and you will most likely be accruing late fees and high interest rates on top of what you owe for the cash advance.
ATM fees add on
In addition to the high interest rates, the cash advance fees and lack of a grace period, you also have to pay ATM fees. The average ATM fee is $3.02, and the average bank charges $1.66 to withdraw money for a non-customer. This means that, if you are not using an ATM from your bank, on average it would cost $4.68 to withdraw cash for a cash advance.
What Other Options Do I Have to Get On Top of my Debt?
There are a few ways to get a handle on your debt. Choosing debt settlement or debt consolidation can make it more manageable.
Debt settlement is a practice that allows you to pay a lump sum that’s typically lower than what you owe in order to resolve or settle your debt. This process involves contacting a debt settlement counselor who will contact your creditor to negotiate or settle your debt on your behalf. This can prevent bankruptcy and stop collectors from calling. However, this system is not perfect. It could negatively impact your credit score, and there is no guarantee the debt settlement counselor will be able to settle all of your debt. That being said, if the debt is settled, you could walk away paying less debt than you owe.
Another option to get on top of your debt is debt consolidation. Debt consolidation is combining your high interest loans into one low interest loan. This way, you can pay for only one bill instead of multiple. You should try to consolidate your debt when it is less than 50% of your income and you have a good enough credit score to get a low interest loan. It can also be an alternative if you cannot make high interest payments to keep you from defaulting. It will not negatively impact your credit score, but you have to keep up with the new payments.
How Christian Debt Counselors Help
Christian Debt Counselors are experts in debt management. Their trusted staff can help you with your debt needs whether through debt consolidation or debt settlement.
If you are drowning in debt and are looking for ways to break free, contact them today. One call could make all the difference in your financial future.