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Sometimes, it isn’t practical to apply for a loan. You don’t need to borrow a large sum of money, but you also need to have the money in your hands right away. If you have a credit card, you can get a credit card cash advance to help you deal with your emergency.
You may be surprised to know that you can obtain cash with your credit card, but you can. You may go to your bank’s ATM, put your card into the machine and receive money for an emergency expense. Although this is a great option for those who need quick cash, it can also cause problems for you.
The things that you have heard about credit card cash advances may lead you to want to run from them, but there are times when credit card cash advances are warranted. For example, you might need to leave the country without notifying your bank. Because your bank doesn’t know that you will be using your credit card in a foreign country, it could place a hold on your account so that you cannot access your funds. It would only require that you call your bank to explain the situation, but there can be problems when you try to do this as well. If your card hasn’t been blocked, you could obtain a credit card cash advance until you can contact your bank.
Another reason that you may need fast cash is when you are patronizing a small business that doesn’t take credit cards. If you have a landlord who will not accept your credit card, a credit card cash advance will work in this situation too.
Taking a cash advance is not completely free of negative consequences. Your credit card agreement will inform you that your cash advance will cost you 5 percent of the amount that you borrow. Some credit card companies will charge 10 percent per transaction. Credit card issuers will begin to charge interest on your credit card cash advance immediately after you receive it. That’s why finance charges for credit card cash advances add up faster than interest charged on your purchases.
Cash advances come with a high annual percentage rate or APR. A typical APR is 25 percent, and since your credit card issuer is not giving you a grace period, you will have to begin paying this rate right away.
A credit card cash advance is seen by many as a sign that the borrower is experiencing financial difficulties. Because of this, credit card issuers may label you as a risk. Your bank may hold this against you in the future if you need to raise your credit limit. Some banks have increased the interest rate on customers who obtained credit card cash advances or closed these accounts altogether.
Lastly, credit utilization is one way in which the credit bureaus calculate your credit scores. If you are using more than 30 percent of your available credit, this is seen as a negative, and your credit scores suffer because of it. When you take a cash advance, it uses up more of your available credit, and it causes your credit scores to go down.
Even though credit card cash advances can be a costly way to pay for your emergencies, you can avoid cash advance fees when you need to do so. You will have to go to a credit union and ask if the institution has a credit card with low fees. You will find that the larger banks all have cash advance fees attached to their credit cards, but if you cannot join a credit union, you may be able to find a larger bank that has credit card advance fees that are reasonable.
You may not be convinced that it is a good idea to accept a credit card advance. If so, you do have alternatives to consider. If you don’t need the money right away, you could open a savings account and start an emergency fund. Another option is borrowing from family or friends.