Avoid Cash Advances
People are often pressed for cash. For example, you might need cash to pay a babysitter or to buy lunch. However, taking a cash advance is one of the worst things you can do financially. A cash advance is a loan you take on your credit card. Most cards allow for a cash advance up to a certain limit, and you can get the money at an ATM or inside a bank. If you are already financially stressed, then taking a quick cash advance is a great way of slipping even further into debt.
High Interest Rates
Take out your most recent credit card statement and look at the APR you are charged for purchases. Now check what the APR is for cash advances. You should not be surprised to see that the cash advance number is substantially higher.
According to MSN, the average cash advance APR is a hefty 23%, whereas the APR for purchases on a credit card is only 17%. This difference can significantly add up.
Also, cash advances typically do not come with any grace period. As a result, interest starts accruing on the day you took out the advance. With purchases, most credit cards give a 30-day grace period, meaning interest will not accrue if you pay off the balance in full by the due date.
You might also need to pay a fee to access cash from your credit card. Some banks charge only a few dollars, but interest might also begin accruing on the fee. Debit cards, by contrast, have no fee to access cash.
Cash Advances Warrant Close Scrutiny in Bankruptcy
If you file for bankruptcy protection, then the trustee will take a close look at any cash advance you made leading up to your filing. In particular, the trustee will check to see that you didn’t take out an advance knowing that you would soon try to wipe out the debt. Bankruptcy law presumes that advances totaling $1,000 or more are fraudulent if they were taken in the 70 days before filing.
Avoid Payday Lenders
Instead of taking an advance off your credit card, you might be tempted to stop at a payday lender and get a loan to tide you over until your next pay period. This is a huge mistake! Payday lenders often charge much more in interest than even a credit card. Seriously—some payday lenders charge interest of 400% or more.
What to Do Instead of a Cash Advance
Ideally, you would have built an emergency fund that you could tap in the event you suddenly need cash. If you haven’t, however, then there are things you can do instead of taking money off your credit card. Investopedia recommends the following:
- Ask friends or family for a loan. Give them a definite time period for paying them back.
- Withdraw money from a Roth IRA. Because you already paid taxes on the contributions, you can withdraw money tax free.
- Check if the bank will extend a personal loan. Shop around for a competitive interest rate.
- Request a salary advance. Ask your boss if you can get paid early. Try not to make this a habit.
We Can Help You File for Bankruptcy Protection
If your debts are spiraling out of control, then a cash advance will make things worse. Instead, consider filing a consumer bankruptcy, which can help you get your financial house in order.
The Plantation bankruptcy attorneys at Nowack & Olson offers a free consultation to those who call 888-813-4737.