Taking a cash advance make seem a perfect solution if you are faced with a financial emergency and need quick cash. Most people sign up for this short term loan as it offers a quick fix to their financial dilemma. One of the important things that you need to remember is that this perfect solution comes with a high price. You can land in serious financial trouble if you rely on cash advances.
Danger 1: Exorbitant fees
Cash advances are promoted by credit card companies to get quick access to cash in emergency situations. These transactions are often accompanied by convenience fees. In addition to this fee, you may also have to pay ATM fees when you withdraw cash from an out of network unit. Every aspect of the process has some fees associated with it and this makes it costly.
Danger 2: Interest rates
The high interest rates that apply are another danger of cash advances using a credit card. The annual percentage rate (APR) is always higher and is usually double than the percentage that is normally charged. Most consumers are not aware of the high APR. They are usually under the impression that it may be treated in the same manner as other purchases made on the credit card.
Danger 3: Lack of grace period
Cash advances do not offer a grace period unlike most credit card transactions and the interest starts accruing immediately. As soon as the process is completed the balance will increase and this can result in increased charges that exceed the original cash advance amount. This can put you in a situation where you may have to pay the advance amount earlier than other amounts owed.
Danger 4: Facilitates bad financial habits
When you start opting for cash advances in all types of emergencies, it may become too easy to develop bad financial habits. This can lead to a dependency on readily available cash and you may not set money aside for difficult situations. This can result in misuse of funds, higher interest rates and longer repayment periods. If you opt for it repeatedly, you may soon find yourself in a mountain of debt.
It is always best to think twice and look for other options when faced with a difficult financial situation as the dangers of using cash advances may outweigh its short term benefits. Avoid getting into a debt trap from which you may find difficult to escape.