A cash advance is a type of short-term borrowing where you can access a portion of your credit limit in cash. It's tempting to use this service when you're in a pinch, but beware of the high fees and interest rates that come with it. In fact, cash advance interest rates can be significantly higher than regular credit card interest rates.
The average interest rate for cash advances is around 24%, according to Bankrate. That means if you take out a $500 cash advance, you'll have to pay back $620 within a month. That's $120 you'll have to pay in just one month. If you can't pay the full amount, the interest will continue to accrue and your debt will keep growing.
Another thing to keep in mind is that most credit cards have a separate cash advance limit. This limit is usually lower than your overall credit limit and can affect your credit utilization ratio. Using too much of your cash advance limit can lead to a negative impact on your credit score.
If you're considering a cash advance, it's important to have a plan to pay it back as soon as possible. Here are some tips to minimize the impact of cash advance interest:
Overall, cash advances can be a useful tool in emergencies, but the high fees and interest rates make them a risky option for borrowing money. Before you consider a cash advance, make sure you have a plan to pay it back quickly and explore alternative options.
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