Cash Advances with Credit Cards can be Costly. Consider these Alternatives

Suppose you require $1,000 to pay rent or repay an outstanding loan but not have the money. What should you do? You could consider a credit cash advance.

It’s quick money, yes. However, it’s going to cost you. The typical cash advance charge is about 5percent, according to CreditCards.com. In addition, the average rate of interest is more than 24%six percent more than the rate for purchases.

If you can repay the $1,000 cash advance within two months, then you’ll have to pay an additional $90, which equates to an effective APR of 54%.

However, there are other ways to access that cash at a lower cost. You may be able to be close to getting a cost-free money advance or take a cash advance off the table altogether.

5 Ways to Avoid a Cash Advance on Your Credit Card

Here are five tips for avoiding an expensive credit cash advance.

1. Convert the balance to a zero-interest Credit Card

If you’re in the routine of paying down the credit card balances every month, it’s the right time to consider a change.

Instead of paying cash advance charges and interest, move a large balance to a credit card with no interest for some time and then use the cash that you would have used to pay off of the card as a cash advance.

It’s even better if you can make it a one-time deal that has no transfer fees. Chase Slate has recently been offering 15 months with zero interest, and there is no transfer fee.

2. Make use of a credit card to make a payment

What do you require the cash advance to be used for?

It’s likely to cost less to use a credit card to pay as well as some services allow you to pay for nearly anything with a credit card today. 

The fees they charge are usually lower than cash advance fees, and you pay less interest rate for purchases than cash advance rates.

Here are a few examples:

  • Rent: The best way to pay rent is to pay rent using your credit card using RentMoola and Place. They can make arrangements with landlords or mail checks. If you live with roommates and you want to share rent and pay using two cards. These companies can charge up to 2.99 percent in service costs. In the case of income taxes, IRS provides a list of businesses that can pay tax with a credit card. You can use these services to pay your tax bill or pay quarterly when you are a business. In August of 2019, the cheapest option is charged the cost of 1.87 percent cost.
  • Property Taxes: Plastiq will take care of your tax payment using a credit card. It will charge 2.5 percent.
  • Tuition: You may also pay your tuition via Plastiq.

3. Charge Prepaid Debit Cards with Gift Card Balances

Sometimes, retailers offer gift cards for sale. For instance, OfficeMax has provided $20 off purchases of at minimum $300 in Visa gift cards. 

That means two of their $200 cards that typically cost $206.95 (there’s an additional $6.95 cost) are $393.90. Three times that, and you’ll have $1,200 worth of Visa gift cards. That’s $1,181.70 all in.

Then, you can change them into cash with pre-paid debit cards. Use prepaid debit cards such as Amex Bluebird or Serve -and pay with the money you have on the Visa and MasterCard gifts cards. 

(Here’s an instruction on how to do this at the Walmart MoneyCenter Express kiosk.) After you’ve loaded them up with the money, you can transfer the funds into your account at a bank and get access to your cash advance.

If you can’t get a deal or discount, the standard $6.95 cost is approximately 3.5 percent of a $200 cash gift card. That’s nevertheless less than the average cash advance fee.

4. Apply for a loan with a short-term term from an institution with a low-income Credit Union

Like a credit cash advance on a credit card, Payday loans can be appealing when you need funds. Instead of making either of these costly decisions -and exposing yourself to having to pay double or triple-digit rates on the loan of $1,000 -consider signing up to an income-based credit union.

Credit unions have federal low-income designations if they have a majority of members earning less than percent of the median earnings in their area of operation. 

They offer financial assistance to those who otherwise could be unable to access them, such as loans specifically designed to assist borrowers in avoiding the traps associated with the traditional payday loans.

This choice may require some more work than the other options listed, but it’s worth a look, particularly in the case of weak credit history (or any credit history even). This type of loan could give you the first steps to improving your credit.

To locate any credit unions, use the national credit union administration’s Credit Union Locator tool to look up credit institutions in your local area. 

If you find one that you are interested in, simply click on the name of the credit institution, follow the link that reads “Research this Credit Union.” The information page will let you know if the credit institution has an income-based designation.

5. Earn Money for Your Work without waiting for payday

There’s not a lot of options when stuck in the pay-to-paycheck cycle. However, you’re not in a bind.

An app for free named Earnin lets you gain the money you need whenever you’d like, without having to wait for your next payday.

Imagine you worked for five hours in the past day. If you’re an hourly, salaried, or contract employee, you can log in to Earnin and receive a payment for the five hours. Since Earnin does not want you to overdraw your account, you can take out as much as $100 per day or $500 per pay period.

Earnin does not charge a fee or impose high interest rates. Earnin simply requires the user to pay what they consider reasonable.

To utilize Earnin, you’ll have to be able to meet specific requirements. You must:

  • Get direct deposits through your workplace to the checking account of your choice.
  • Maintain a regular pay plan (weekly or bi-weekly, semi-monthly or monthly).
  • Set up a fixed place of work or utilize an online timekeeping system while at work. This can help Earnin to confirm that you’re working.

Is It Worth the Risk?

If you repay it throughout a month, a $1000 credit cash advance from a credit card will generally cost you 5% upfront ($50) plus 2% interest over the period ($21 on the amount at $1,050). This is a total of $71, but specific strategies mentioned discussed above could cut the cost by half. What is the value?

You can make that decision depending on your circumstances.

If you’re unable to repay the cash advance promptly, These strategies are more beneficial. The typical rate is an interest rate lower than the standard interest rate for cash advances. You’ll save money every month.

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