September 19, 2017
 
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Credit Card Tricks of the Trade- Cash Advances


Cash Advances
Anyone who has ever gotten themselves into a vicious cash advance cycle using credit cards would probably advise you not to go down that path—don’t even think about it. Although it’s so easy and convenient to turn to your credit card when you’re looking for some quick cash, it’s important to know it usually only benefits the card company. Remember, knowledge is power. Knowing how cash advances work will help you make better decisions when it comes to your credit cards.

What it is??
Many credit card companies allow their customers to borrow cash in addition to making purchases on credit. Usually, cash advances and purchases are treated differently, in terms of the annual percentage rate. Your credit card company may allow you to use an ATM to get the cash, or they’ll send you checks that you can write and cash in. Also, they may set limits on the dollar amount that you can get. For example, $300 per cash advance, $500 per week, or 75% of your available credit limit.

Cash advances are considered loans and are subject to transaction fees as well as interest charges that begin accruing immediately, without a grace period. The fees can be either a flat rate or a percentage of the cash advance—typically 2% to 4%. Also, the interest rate for cash advances is much higher than the APR for new purchases, so you can see how a little cash withdrawal can be costly. Aside from the interest and fees, your monthly payments will be applied to the lower interest balance before they’re applied to the higher interest cash advance balance.

Cash Advantage or Disadvantage?
Just like a payday advance, using your future money for goods consumed today can only lead to financial hardships, credit problems and in many cases, financial ruin. Cash advances allow you to borrow money when you can’t afford whatever it is you’re buying. While there may be some legitimate reasons for a cash advance (although, I can’t think of any!), credit card companies offer this service hoping it will get consumers into debt so they can make bigger profits. By law, card issuers are required to disclose information about fees and interest charges. If you don’t know what you’re paying for a cash advance, read the application or the back of your monthly statement. Hopefully, it will be motivation not to use this service. Many experts would agree that the biggest disadvantage for consumers who get cash advances is the price they pay for this type of borrowing.

 

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