When you’re just starting out with your first job, first apartment and first real budget, it can sometimes be hard to make ends meet. You may have student loans, credit card debt and necessary expenditures that add up. It’s common to live paycheck to paycheck in some circumstances.
When you’re caught off-guard by a bill that you didn’t expect, it may seem to make sense to take a cash advance. Cash advances get you money quickly, but they are costly and may not be the best option for you.
How a common cash advance works
In most cases, a cash advance is available as a short-term loan that you need to repay quickly. You may be able to get a cash advance from a credit card through your ATM or in person at your local bank. You may also have convenience checks mailed to you by your credit card lender.
Once you take out the money, you should understand that a cash advance is unique. When you take out the money, there will likely be a fee. On top of that, you may have to pay off all of the debt on a credit card before the cash advance can be paid off. That means that you’ll pay interest on that advance until you can zero out your card. There is also no grace period, so expect to pay interest starting from the day you take out the money.
How much does a cash advance really cost?
It depends on the terms from the lender. You may take out $100, for example, but have to pay a 5% cash advance fee and a high cash advance APR, which could be anything from 15 to 29% or more, depending on the terms. If you stretch out how long it will take to repay the cash advance, then you could end up paying a significant amount in fees and interest.
Alternatives to cash advances may be less costly. Asking family or friends for a short advance or even taking out a loan might be more beneficial in the longer term. That said, if you’re finding that you’re short of money often and have debt that is weighing down your ability to stay afloat, it may be time to consider bankruptcy or other debt-reduction options.