If you’re in a bind and desperate for money, a cash advance via your credit card can seem like an oasis in the financial wilderness. Be careful, though. There are several key things you need to make sure you are aware of before plunging in.
Interest rate
A common mistake is to assume that the interest rate on cash advances is the same as the interest rate for purchases you make using the card. To avoid being burned, know the interest you’ll be charged before you borrow. Chances are it’s significantly higher than your rate for purchases.
Teaser rates
Does your cash advance come with a low initial rate that quickly jumps if you don’t pay the money back within a certain time? Make sure you’re aware of any rate hikes that could kick in.
Transaction fee
Like the interest rate, the transaction fee can be a real shocker if you haven’t done your homework. If the combination of the interest rate and fees makes a cash advance too expensive for you, explore cheaper options for coming up with some quick cash.
Grace period
When you make a purchase with a credit card, there is normally a grace period before interest is charged on the money borrowed. However, with cash advances, it’s not uncommon for interest to be charged from the moment you complete the transaction.
Payment rules
Since the money you borrow via cash advance gets added to your credit card balance, it’s important to know how the any payments you make for the card will be applied. For example, when you make your regular monthly payment, how much of that gets applied to the cash advance portion of your debt? You don’t want to encounter a situation in which you are only paying on your lower interest debt while the higher interest debt goes untouched.
Credit card cash advances should never be used in lieu of emergency savings or as an excuse to live beyond your means. They should only be considered in emergencies, and even then they should be weighed against cheaper or less risky options.
