Top 10 You Could Have a Bigger Cash Flow Problem?

Top 10 You Could Have a Bigger Cash Flow Problem?

When to consider using a cash advance?

Cash advances can be an important source of funds in an emergency. Although you don’t want to plan on using cash advances regularly, you might use one if you are short on funds and unable to charge an expense. However, always be sure to consider all your options given the costs.

1. What should you do when considering getting a cash advance?
Ignore the costs associated with cash advances.
Consider all your available options.
Charge an expense when funds are short.
Make a plan to use cash advances regularly.

2. What should you always consider when using a cash advance?
The availability of funds.
Your credit score.
Your emergency needs.
All your options given the costs.

Why You Should Avoid Credit Card Cash Advance?

The option of getting cash with your credit card may sound tempting, especially if you're short on money, but you should know that a credit card cash advance is not the same as withdrawing cash using your debit card. In fact, credit cards are cash advance loans and as such, are expensive and can easily lead to credit card debt.1

Using your credit card to withdraw cash from an ATM, using one of the convenience checks provided by the card issuer, and using your credit card overdraft protection are ways your credit card issuer makes cash available to you. Is. It can be easy to take out a cash advance from your credit limit, but you should avoid doing so unless it is an extreme emergency and you are sure that you can repay the money as soon as possible.

Why Credit Card Cash Advances Are So Expensive?

Cash advance is one of the costliest types of credit card transactions. This is because their value is different compared to other purchases, including balance transfers.

Here's what you should consider before taking a cash advance.

Cash Advance Fees: Cash advances are charged a cash advance fee that’s either a minimum flat rate or a percentage of the amount of the cash advance. For example, the credit card terms may state the fee is $5 or 5%, whichever is greater. Under these terms, the fee on a $150 cash advance would be $7.50—5% of the advance amount.

ATM Fees: In addition to the cash advance fee, you'll also be charged an ATM fee, between $2 and $5, depending on which bank’s ATM you use. The ATM operator and your credit card issuer may both charge an ATM fee. 

High Interest: The interest rates on cash advances are almost always higher than the rates on purchases and even balance transfers. Assuming you pay off each balance within the same amount of time, for example, you'll pay more interest on a $500 cash advance than you will on a $500 plane ticket. The longer you take to repay the cash advance, the more interest you will earn and consequently you will have to pay.

No Grace Period: Most credit cards don't offer a grace period on cash advances. That means you don't get a full billing cycle to pay off the full amount due—thus, avoiding a finance charge. Interest start accruing from the date the transaction clear your credit card account.

Payment Allocation Rule: Federal law requires credit card issuers to apply minimum payments to the balance with the highest interest rate. But, anything above the minimum, the credit card issuer can impose whatever they want. Often, payments higher than the minimum apply to the minimum interest rate balance, which means it takes longer to pay off the cash advance balance. And, taking longer to pay means you'll end up paying more in the long run.

You Could Have a Bigger Cash Flow Problem 

Consider whether your need to take cash advance withdrawals is a sign of a larger financial problem. Ideally, you should have enough income to meet all your financial obligations. If you do not have enough money to pay your basic bills and essential expenses such as rent and utilities, how will you have enough money to pay your credit card bill?

People who take cash advances are more likely to default on their credit card debt than those who do not. This is the reason why the interest rates on cash advances are high. It can also put you at risk of falling behind on your credit card payments.

If you need cash in a pinch, there are ways to get cash from a credit card without doing an actual cash advance, including shifting around how you pay your bills or being creative with gift cards. But if you find that you’re frequently using cash advances to pay for things—especially essentials like groceries—it’s time to take a closer look at your budget and spending and make efforts to align the two.


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