Is it always a good idea to get a cash advance on your credit card?

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It’s not always a bad idea.

Key points

  • Credit card cash advances come with high fees and interest rates.
  • Usually, you should try to avoid a cash advance.
  • There may be circumstances where getting one isn’t the worst idea, such as if you’re using it as an alternative to an expensive payday loan for an emergency expense.

Most of the time when you use your credit cards, you charge for purchases. But there is actually a way to withdraw money from your credit card: you can do it by taking a cash advance. Often this just means going to the ATM or bank and asking for one.

Taking out a cash advance might be a good solution if you have an essential expense that you can’t charge to your card and can’t afford to pay. But, in reality, there are serious financial drawbacks to doing so.

That doesn’t mean you should never take out a cash advance – but before you do, you should seriously ask yourself if it’s the right decision.

There are good reasons to avoid cash advances

In general, cash advances should be avoided as they can be a very expensive way to get cash.

You will usually be charged an upfront fee when taking a cash advance, which can range from around 3% to 5% of the amount borrowed. The interest rate may also be higher on a cash advance than your standard card rate, and you’ll usually start earning interest immediately. This is different from when you charge items to a credit card, because you don’t have to pay interest on items charged if you pay your balance in full before your grace period.

You may also not be able to borrow as much with a cash advance, as there is often a lower limit that applies. For example, if you have a $10,000 line of credit, you may only qualify for a cash advance of up to $4,000 or whatever your card issuer sets as a limit.

So, since a cash advance will cost you more and be more restrictive than simply charging something to your card, you generally shouldn’t do it.

Here’s when you might want to consider grabbing one anyway

While a cash advance should always be avoided in a perfect world, the reality is that sometimes people find themselves in financial binds and need help getting out of it. And a cash advance could be a way to do that. if alternatives will cost you more.

Say, for example, you need $500 to fix your car today and the mechanic won’t take a credit card. If you have no other way to pay for car repairs and you won’t be able to get to work and would lose your job, a cash advance might be an option if you plan to pay the money back quickly.

Or if you’re considering a payday loan to pay for an essential expense like covering your rent until your paycheck arrives, a cash advance may be cheaper.

Basically, as these examples are designed to illustrate, if you’re stuck in a corner with no other way to borrow, and the consequences of not taking a cash advance would outweigh the costs of supporting you, you have this option available. If you exercise it, however, you will want to make a plan to pay the money back as soon as possible. and a plan to make sure you won’t need to do this in the future – like saving an emergency fund.

Ultimately, cash advances are a financial tool at your disposal. But since they’re so expensive, save them for serious emergencies and do what you can to make sure you don’t end up in that situation.

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