Getting that cash advance is not something you want, so here you will discover how to get rid of cash advance interest the best way.
When you are short of funds or have no money, you want to get a cash advance from your credit card because it is fast and convenient. However, you have to pay expensively for it.
You cannot also abandon this debt unless you stop using the account but the debt adds up, and you will get caught somehow.
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How cash advance works
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A cash advance is a cash loan from your credit card, and you typically get it from a bank that works with a credit card issuer such as Discover, MasterCard, Visa, and Express. The maximum amount of cash advance is equal to the credit available.
Getting a cash advance is fast and convenient but expensive. You must note the following about a cash advance:
- Transaction fees. You will pay a transaction fee of 3-5 percent of the amount you receive. In a 5% fee, if you get a $200 cash advance, you repay $10.
- Higher APR (Annual Percentage Rate). The APR of cash advance on a credit card is significantly higher than the APR on other regular transactions. According to Creditcards.com, the current average credit card interest rate is 16.13%. The APR of your card may be higher or lower for regular purchases but the average APR for a cash advance is significantly higher.
- Grace period. Unfortunately, there is no grace period for a cash advance transaction. The interest starts accruing on your balance immediately after you complete the transaction.
How to get rid of cash advance interest
You cannot completely get rid of cash advance as in not paying it at all. However, with the practices below, you can reduce the cost of repayment.
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Borrow little amount
Do not borrow a high amount, go for as little amount as possible to reduce your cash advance costs. The more money you borrow, the higher the fees and interest. Keep in mind that a cash advance is a bank loan, and they will always have you repay it. When the loan is smaller, you are able to repay it faster.
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Pay off your debt faster
Your cash advance interest begins to accrue on your balance immediately after the transaction is completed, so you have to start repaying the debt as quickly as possible.
Suppose you take a $300 cash advance; you want to pay the full amount or as much amount as possible on your minimum payment.
Ensure to repay the amount within a few days instead of weeks to prevent the interest from adding up too much. Of course, you do not want to think about repaying it in months, that will be a huge financial burden.
If you get a cash advance of $1,000 at 25%, it accrues interest of up to 70% daily. You can prevent the interest from adding up too much by paying off what you owe as fast as possible.
You should find the different interest rates for all your purchases, cash advance, and balance transfers in your credit card statement.
Fortunately, the 2009 Credit Card Act ensures that a credit card company applies the payments you make in excess of the minimum amount due to your balance with the highest interest rate. Before now, credit card companies apply payments over the minimum monthly amount to the lowest interest balance, which would increase the time you have to repay the higher interest rate balance.
Cost of cash advance
As mentioned earlier, a cash advance can be expensive, Now, let us assume that you take a $500 cash advance at 25% APR and pay $15 (minimum payment) monthly. You will repay the amount in 58 months before the complete balance payment.
Moreover, you will pay $362 in interest, a $25 cash advance fee, and about a $3 ATM fee. This means that for a $500 loan, you will repay up to $390.
You can see that the convenience of a cash advance is costly at 78 percent more than the $500 you borrowed originally if you make the minimum payment only.
If you double your monthly payment to $30 monthly, you can pay off the debt in 21 months with $120 in interest. However, if you triple your monthly payment to $45 monthly, you can repay your debt in 13 months with $75 in interest.
From the example above, you can see the advantage of paying more than the minimum amount to reduce your cash advance cost.
A sizable cash advance payment can significantly reduce the interest charges as well as the repayment timeline over the minimum amount. If you cannot pay more than the minimum amount, do not take out a cash advance.
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Alternatives to cash advance
When you need money urgently, you may want to consider other alternatives over a cash advance. However, these alternatives may not be fast and convenient but less somehow expensive compared to a cash advance.
Borrow from family and friends
You can borrow money from your family members or friends but make sure to meet the terms of the loan. You might be fortunate to secure the money as a gift, meaning you do not get to repay it. Moreover, this medium of getting a loan is not burdensome, you may not have to repay with interest depending on your relationship with the person.
Unfortunately, you would be creating a bad relationship with the person if you default. Make sure you do not disappoint this person to retain that good relationship.
Meanwhile, here are a few messages you can use to ask for money. If someone promise you some money, follow these steps to get the money.
Extend your bill payment
If you need a cash advance to pay your bills, it may not be worth it to take out a cash advance. Discuss with your creditor to extend the deadline. Your creditor may also offer a payment plan that allows you to complete your payment without affecting your credit.
Depending on the service, you may be able to pause your accounts for some weeks or even months until you can afford the cost. Ensure to discuss your problem with your creditor for possible options you can use to reduce your financial burden.
Take a personal loan
A personal loan may be expensive if you do not have good credit. If you have bad credit, you are considered high risk by the lender and this increases your interest rates. That notwithstanding, interest rates and terms from personal loans are typically more favorable than a cash advance.
FAQs
Why do I keep getting charged interest on cash advance?
You get charged interest on cash advance when you take out a cash advance from a creditor. Unfortunately, a cash advance has a separate and typically higher interest rate than purchases or balance transfers. There is also no grace period, so the interest accrues immediately after the transaction is completed.
Do cash advances hurt your credit score?
A cash advance does not directly hurt your credit score, your credit history does not also show a cash advance history. However, a cash advance is added to your credit card debt, this can hurt your credit score when your credit utilization ratio increases.
Can I turn off cash advance?
You can turn off a cash advance on your card if you have one enabled. This means that you have complete control over your credit cards when making cash withdrawals.
