Everything goes according to plan until it doesn’t. Any household budget — even one that’s solid under normal circumstances — can get blown out of the water by unanticipated expenses cropping up when we least expect them.
What starts as a normal commute can turn into a sticky financial situation when your car dies, requiring a tow and extensive repairs. Perhaps you’re one of the many Americans whose income stream has been affected by the COVID-19 pandemic. A pipe could burst in the middle of winter, flooding your walls and requiring a call to the emergency plumber. The list goes on.
Whatever the case may be, it’s common for people to find themselves in need of a sudden influx of cash. Credit cardholders may find themselves tempted to use their card at the ATM to borrow some fast funds. Before doing so, it’s important to know what alternatives are available. This will help you minimize risk and expense when borrowing money to meet your needs.
What to Know About Credit Card Cash Advances
Credit card cash advances are, above all, convenient. All you need is a qualifying card and an ATM or bank nearby to borrow money against your line of credit.
However, there are some pretty significant downsides to borrowing this way:
- Lower credit limits: Rather than being able to borrow up to your regular credit limit, your card will likely have a designated lower limit for advances.
- Lack of a grace period: When you put a purchase on a credit card, you’ll usually have at least a 20-day grace period to pay it off without accumulating interest. Advances, however, begin racking up interest right away.
- Fee per cash advance: Borrowers can expect a three to five percent fee per transaction.
- Higher interest rates than routine purchases: Credit cards are already notorious for having high average interest rates, but cash advance rates tend to be even higher. It can cost quite a bit in interest charges for the privilege of taking on this short-term loan.
Credit card cash advances can help in a pinch, but it helps to know your other options so you can make the most informed decision in the moment.
5 Alternatives to Cash Advances on a Credit Card
Here are five alternatives to cash advances on credit cards worth exploring:
- Get a Personal Loan: Borrowers with solid credit may find themselves able to qualify for a personal loan from a bank, credit union or online company — ideally with an average or low interest rate.
- Get a Secured Loan: Borrowers who may not qualify outright for competitive personal loans may be able to secure an asset as collateral, like a home or vehicle. Be aware you will risk losing that asset if you default on the loan, though.
- Open a Low-Interest Line of Credit: Many credit cards offer an introductory period with zero interest, so it may be savvier to put a sudden expense on this card with the goal of paying it off before interest starts accruing. Know the risks of getting caught up in a cycle of expensive credit card debt, and brush up on different forms of debt relief programs — like consolidation, management and settlement — if you’re struggling with this type of debt.
- Borrow from Retirement Funds: Whether you have a 401(k) or a Roth IRA, you may be able to borrow funds from your own retirement in a pinch.
- Borrow from Family or Friends: A trusted loved one may lend you money at no or low interest. Just be sure you can stick to the repayment terms up front or you’ll risk damaging your relationship.
Taking out a cash advance against a credit card is an option for borrowing money, but certainly not the only one. Figure out which is best for your financial needs before making your next move.
