Cash advances from your credit card seem like a convenient solution when you face an unexpected bill or cash flow problem. With the quick withdrawal of funds, it can be easy to think that taking out a cash advance isn’t such a bad idea.
Taking cash advances on credit cards can quickly spiral into a vicious cycle that may be difficult for you to get out of.
There are several drawbacks
While cash advances on credit cards can provide immediate funds, they come with several drawbacks. Here are some key disadvantages to consider:
- Cash advances typically have higher interest rates than regular credit card purchases.
- In addition to the $2-$5 ATM fee charged by the bank, most credit card companies charge a fee for cash advances, which could be up to 5% of the money you’re borrowing. A cash advance of $100 could cost you $10 in just fees.
- Unlike credit card purchases, cash advances usually have no grace period. Interest starts accruing from the day you take out the cash advance.
- If you’re unable to pay off the cash advance quickly, it can lead to a never-ending cycle of debt. The high-interest rates and fees can cause the balance to snowball, making it hard to pay off the advance.
Most people don’t plan to spend beyond their means. They may be expecting a bonus, tax refund, or some other boost in income that will allow them to pay off their credit card debt. However, job loss or an unexpected emergency expense can derail their plans.
In some cases, filing for bankruptcy is the only option for a fresh financial beginning.