Understanding the workings of credit card cash advances and exploring the alternatives can save you from the financial pitfalls associated with them.
What are Credit Card Cash Advances and How to Avoid Them
Credit card cash advances can seem like a saving grace in desperate times, but the associated fees and high-interest rates can quickly snowball into a financial disaster.
There are several alternatives to consider before resorting to a cash advance.
Evaluating Your Need for Cash
Before taking a cash advance, critically assess your need for the money. Could you do without it, or maybe you could manage with a smaller amount? Use your budget as your guide to determine not only if you need the money, but also how you will manage repayment.
Overdraft Protection: How Does it Work?
Overdraft protection can act as a buffer if you accidentally overspend. However, like cash advances, this should not be relied upon as a regular source of funds.
Personal Loans from Family or Friends
If you have close family or friends who are financially capable, consider a private loan with a concrete repayment plan. This option could save you from the steep interest rates and fees tied to cash advances.
Tapping into Your Assets
If you have substantial assets like a home or savings in a RRSP or a TFSA, you could potentially draw from these. However, consult with a financial advisor before doing this as withdrawals could trigger taxes and penalties.
Bank Loans, Consolidation Loans, and Credit Limit Increases
If you have a good credit rating and a positive relationship with your bank, consider asking for a personal loan, a line of credit, or a credit card limit increase. These options often have lower interest rates than cash advances.
A debt consolidation loan might also be an option to consider.
Warning: Using a line of credit to consolidate debt can lead to its own set of problems if not managed carefully.
Emergency Savings Fund
If you have an emergency savings fund, this could be your best bail-out plan in a financial crisis, as it is usually a better option than a cash advance. Remember to replenish this account as soon as you can.
Conclusion
While credit card cash advances can be convenient, they come with high costs and should be used as a last resort.
By understanding how credit card cash advances work, you can make informed financial decisions and explore alternatives if you need cash. This understanding could be the difference between a temporary financial setback and a long-term financial disaster.
