Now, new figures suggest that as American families’ cash flow grows increasingly tight, more people are using credit cards to obtain cash advances.
The study, by Standard & Poor’s, reveals that 10 percent of adults say they are using their cards for more cash advances than they did in the past.
While it may seem like a good idea in the heat of the moment, taking a cash advance is likely to wind up being very costly for credit card holders – and most financial experts advise consumers to avoid them if possible.
For one thing, the majority of card issuers charge a fee for each cash advance that may be equal to as much as 2 to 4 percent of the total withdrawn.
Meanwhile, companies do not provide a grace period for repayment on these transactions. For people who are already facing difficulties making ends meet, interest will start accumulating quickly.
Also, the interest rate for cash advances is likely to be higher than it is for purchases – and many card companies allocate payments to purchases first, meaning that you will end up paying more interest over the long term.
In the face of such threats to your financial health, you may want to take a second glance at the supposed necessity that may have prompted you to consider a cash advance in the first place. Do you really need it?
“If it’s a luxury masked as a necessity, you’ll need to reevaluate,” consumer advocate John Ulzheimer told the Denver Post, explaining the type of criteria people should use when making purchases in a difficult credit climate.
If it really is a necessity, consider other ways of paying for it that may carry lower interest rates and fees.
The Standard & Poor’s survey also found that 14 percent of credit card holders sometimes struggle to pay the amount they owe to their card issuer each month, while 6 percent always have problems.
If you are finding it difficult to manage your debt – or are increasingly relying on cash advances to get you through the week – you may want to consider speaking to a debt counselor, who can recommend possible solutions.
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