Exploring the Benefits and Risks of Credit Card Cash Advances

Firstly, What Is a Cash Advance?

If you're a regular reader of our blog, you'll know by now what a cash advance is. If you're new here, welcome. It's time to get schooled 💅

A cash advance is essentially a short-term cash advance which is usually provided by your credit card issuer. It lets you withdraw cash, either through an ATM or at a bank, using your credit card.

Sounds simple, right? But like everything else in life, there's more to it than meets the eye 🙃

Nothing comes for free y'all.

In this blog post, we'll explore the world of cash advances – highlighting the benefits, but also shining a light on some potential pitfalls.

Let's go.

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What Is a Cash Advance on a Credit Card?

In 2023 inflation just kept going up, right? Which made way more of us turn to our trusty credit cards than the year before. But what happens when you're stuck needing cash for bills, or just don't want to deal with those pesky card swipe fees?

That's where credit card cash advances come in. Basically, it's your invisible credit turning into actual, tangible cash. Sounds handy, right? Well… these advances aren't free and theymess with your credit score.

So what's a credit card cash advance? It's like a mini loan you take from your card's credit limit. The cool part is that it's cash, so you can spend it on rent, fuel, or anything else that requires cash. The not-so-cool part is the APR (annual percentage rate) which we'll go into more detail about later on.

Check out What Is a Cash Advance on a Credit Card for a full run-down 💳

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‍‍Benefits of Cash Advances

#1 No Credit Check

Unlike loans, obtaining a cash advance doesn’t require a credit check. This is good news for those with less-than-stellar credit scores who might struggle to get loans approved. With a cash advance, your credit limit is your loan limit.

#2 Simple Process

The process of getting a cash advance is quite straightforward. You typically don't have to go through a lengthy application process. If your credit card has a PIN, you should be able to just use an ATM to get your cash advance. And if you don't have a PIN, you can go to a bank to get one.

‍Risks of Cash Advances

Okay, that's all the positive stuff covered. Now for the... less positive stuff. While a cash advance might seem like a good option in an emergency, there are also risks involved which you should be aware of.

#1 High Interest and Fees

The primary risk that comes with cash advances is high interest rates and fees. Cash advances often have higher interest rates than regular purchases on a credit card. Plus, the interest starts accruing immediately – there's no grace period like there is with regular credit card purchases.

And with a cash advance, you often have to pay a fee. This fee could be a percentage of the cash advance or a flat rate. Either way, it adds to the cost of the cash advance 🚨

Wallet Hub says 24.22% is the current average APR for a cash advance on a credit card but can be as high as 36%.

#2 Impact on Credit Score

While getting a cash advance doesn’t require a credit check, it could indirectly affect your credit score. A major factor in determining your credit score is your credit utilization ratio, which is the percentage of your total credit you're using. If a cash advance increases your ratio significantly, it could negatively impact your credit score.

#3 Potential Debt Cycle

Cash advances should ideally be used as a last resort. They can easily turn into a debt cycle if you're not careful. If you start relying on cash advances for regular expenses, you could end up accruing more debt than you can handle.

If you're currently in credit card debt and need help, our resident Financial Wellness expert, Anna Yen, has answered How to Pay off Credit Card Debt 💙

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‍Use a Cash Advance Wisely

Cash advances can be a helpful tool for those rare, unexpected financial crises. They provide instant access to cash without a credit check, making them a viable option when there's nowhere else to turn.

But remember, with great financial tools comes great responsibility. The risks of high interest rates, fees, potential impact on your credit score, and the danger of a debt cycle should be considered. These risks highlight the importance of using cash advances sparingly and responsibly.

Consider a cash advance as a kind of parachute - it might be great to have in case of an emergency, but not something you want to be using all the time. Be mindful of your financial habits, create a solid budget, and save for unexpected costs. If you do find yourself needing a cash advance, make sure to pay it off as quickly as possible to avoid the high costs 💖

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‍An AI Alternative to Credit Card Cash Advances 💡

Cleo's completely different to a credit card cash advance. She can spot you up to $250* to help keep you going until payday. And she won't hit you with huge APR rates, there's no credit checks, no fees, and no minimum direct deposits.

Gig workers, we see you 👀

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And if you're looking for something that's going to help you keep your finances on track, Cleo uses artificial intelligence to give you personalized advice and insights based on your financial behavior and transactions (in a big sis energy kinda way 👀)

With Cleo, you can build a personalized budget plan that suits you. And it won't cost you a dime to do it.

How to get started:

1) Get connected 🤝 – Download Cleo, sign up, and connect your checking account.
‍2) Income 💸 – Select your latest paycheck(s) so Cleo knows when you get paid.
‍3) Bills 👀 – Add your bills and double-check to see if they’re right so they can be tracked correctly.
‍4) Spend limit 🥡 – Set a realistic spend limit.

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_{*Eligibility requirements apply. Not all users will qualify. Advance amounts range from $20 to $250. Same day transfers subject to express fees. Visit meetcleo.com/terms for more information.}