If you get a cash advance from one of your credit cards, you need to understand how that advance may impact your interest rates and begin to greatly increase your monthly payments. Cash advances let you take money from your credit card balance and use it as cash. They are a kind of short-term loan that let you avoid using the card itself in cases that you have to have cash instead.
As a short-term loan, the goal is to repay it as soon as you can. However, you have to keep in mind that it is easy to get caught up in a cycle of debt with cash advances. They aren’t repaid in the same way as credit cards, which can lead to trouble.
How do you repay a cash advance?
If you want to repay a cash advance, you generally have to pay off your actual borrowed credit in full. For example, if you have $1,000 in debt on your credit card and take $2,000 in the form of a cash advance, paying $2,000 on the card in the same month won’t automatically repay just the cash advance. That’s problematic, because you’ll be charged interest on your normal credit card debt as well as the cash advance. There is also usually a fee for the cash advance, which will add to your overall debt and increase the interest you could pay.
Another catch that you may not have realized is that cash advances come with no grace period. You’ll start paying interest the moment you take out that advance, even though normal credit card debt is repaid with a grace period.
Cash advances tend to have a higher APR, which you have to keep in mind
Cash advances are also usually charged at a higher interest rate, so you could end up paying 22, 25, or even 29% to borrow that money, even if your credit card is only 7% or 10%.
Knowing these facts, it is easy to see how people can get caught up in the debt caused by cash advances. If you’re concerned that you have debt that keeps accruing and that doesn’t seem to have an end, you may want to look into bankruptcy as a way to pause the debt and, in some cases, eliminate it.