Who Uses Cash Anymore Why You Should Avoid Costly Cash Advances

Who Uses Cash Anymore Why You Should Avoid Costly Cash Advances Who Uses Cash Anymore? Why You Should Avoid Costly Cash Advances Who Uses Cash Anymore? Why You Should Avoid Costly Cash AdvancesTaking out a cash advance on your credit card or from a local storefront might seem like a good short-term money fix, but the costs are going to add up fast.Do you need money? Obviously, most people wouldn’t say “no” to more money. But we’re asking if you specifically need more money to pay for your basic necessities right now.Maybe you had a sudden emergency come up. Your car broke down or there was a medical issue or your heater gave out in the middle of winter. These are the kinds of things that need to be addressed ASAP.But fixing this stuff can be very expensive. Medical costs and repairsâ€"which are like medical costs for cars or heatersâ€"can cost in the thousands or tens of thousands. If you need money to cover a financial emergency, what choices do you have?One choice is a cash advance. But is it a good choice? The cash advance facts.Before we get into whether it’s generally good or bad, let’s just r eview what exactly cash advances are and how they work.Simply put, a cash advance is a loan you take out with a credit card. You can use your credit card at an ATM to take out a cash advance loan just like how youd withdraw money from your account with a debit card. The amount you withdraw is added to your total balance.But whereas you’ll only have to pay an ATM fee (assuming you used a non-bank ATM) when making a withdrawal, a cash advance will quickly become very expensive.The costs of cash advances.Given that cash advances are a type of loan, it shouldn’t surprise you that you’ll be expected to pay it back with interest. What might surprise you, however, is the cost of said loan, and the ways it differs from using your credit card normally.“There are loads of challenges with using credit cards for cash advances,” warned David Gafford, Co-Founder of Shift Processing (@ShiftProcessing). “For starters, theres the cash advance fee that many issuing banks have placed on an y cash advance taken from their card. Weve seen anywhere from $2 on the low end all the way to 5 percent of the transaction value. Thats a hefty sum depending on how large of a cash advance one might need.“Another challenge is the much higher interest rate on any balances carried on a credit card. For a credit card cash advance, youre willingly taking on one of the highest interest rates available for that sum of money.“A third reason, and one of the strongest, in my opinion, is that cash advances start tabulating interest on the advance as soon as the money hits your account. With most credit card purchases, the cardholder will have a full month before interest is charged, but in the case of a cash advance, it begins instantly.”And he wasn’t the only one who raised the alarm about how quickly interest will accumulate on a cash advance loan.“Most credit cards have a grace period, and as long as you pay your balance in full, on time, every month, you can avoid paying intere st and additional fees,” explained author  Sharon Marchisello (@SLMarchisello).“But unlike regular charges on a credit card, a cash advance starts accruing interest the moment it is posted. This puts the account on ‘the interest train.’ So even if you pay off your statement balance on time when the bill comes, there will still be residual interest which will carry over to the following month.And when youre carrying a balance, all new purchases with that card accrue interest from the moment they are posted; the grace period no longer applies. The only way to get off this interest train is to zero out the account; pay the entire balance in full (even new purchases for which payment is not yet due).”So that’s not great! But theres another type of cash advance thats  way  more costly.It’s a debt trap!Cash advance payment terms may be pretty bad, but it can be even worse. Some predatory lenders will advertise their bad credit loan products as cash advances when they may act ually just be payday loans.“If an employer is willing to provide a cash advance with no interest or fees, thats one thing,” advised explained finance writer and  Middle Class Dad Jeff Campbell (@middleclassdad1). “Most people, however, rely on payday loan outlets which charge interest rates of up to a whopping 400 percent (an average of about $22 per $100 borrowed). But the shorter the loan term (in terms of how quickly they have to repay it) the higher the interest rate.“People are obviously taking the loan because they ran out of money from their last check, but paying interest rates of up to 400 percent means that they will almost never get ahead and the cycle just continues throughout the year.“If Joe gets paid monthly from his employer and takes out one payday loan about 10 days before the next paycheck each month, borrowing $1,000 from a payday lender, he could conceivably pay $300 in fees each month or an annual total of $3,600.”Taking out one of these short-term no credit check loans could be even worse than taking out a “traditional” cash advance with your credit card. But just because cash advances might not be the absolute worst option, they should still be one of your absolute last resorts, if they even make your list of considerations at all.There has to be a better way!Borrowing from a friend or family member is likely the best option when you need money for an emergency. Your next best option is looking around for a personal loan  (likely an installment loan) with the best possible terms that your current credit score will allow. Even if you do want to use a credit card, using it for a cash advance is probably the wrong way to go.“As an alternative, we suggest that individuals use their credit card for the payment rather than take out cash,” suggested Gafford. “With the credit card charge, you still have the benefits of a full billing cycle to pay off the charge and none of the fees or instant accrued interest.“If a credi t card wont work for the payment, we suggest putting the money on a gift card if that form of payment is accepted. Credit card cash advances are one of the last methods we will recommend to get money because of the massive downsides to this form of credit.”Cash advances should really be your last option, if at all. Hopefully, this article has helped explain why. To learn more about how you can improve your financial situation, check out these related posts and articles from OppLoans:A Beginner’s Guide to Budgeting8 Good Habits to Get Your Financesâ€"and Your Lifeâ€"on TrackYour Guide to Escaping a Debt Trap8 Ways To Save Money Today, Tomorrow and Every Day AfterDo you have a question about cash advances? Let us know! You can find us  on  Facebook  and  Twitter.  |  InstagramContributorsJeff Campbell  (@middleclassdad1)  blogs on all things Personal Finance, Parenting, Relationships more at  NewMiddleClassDad.com. He is a Dad, Husband, Martial Artist and worked for over 2 decade s as a leader for Whole Foods Market.David Gafford is the Co-Founder of  Shift Processing (@ShiftProcessing), a credit card processing company. Since 2014, my industry experience with credit cards, credit ratings, card rewards, high-risk processing and more enables me to provide excellent content and adviceSharon Marchisello  (@SLMarchisello) author of  Live Well, Grow Wealth, became interested in personal finance at an early age and was a long-time member and officer of the Marathon Investment Club. She earned a Masters in Professional Writing from the University of Southern California and has published travel articles, short stories, book reviews, and a murder mystery (Going Home, Sunbury Press 2014). She also writes a personal finance blog,  Countdown to Financial Fitness.