1 in 3 Consumers Has Made This Dangerous Credit Card Move

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Your credit card might give you access to cash. Read on to see why you may not want to take advantage of that. 

As a credit card holder, you may be privy to a host of benefits. For example, your credit card might offer protection against lost or stolen purchases, and you may be entitled to cash back on the various items you charge.

Another option that might be available to you as a credit card holder is using your card to get money when you need some in a pinch. Over the last two years, 33% of consumers have taken a cash advance from a credit card at least once, according to a recent survey by First Tech Federal Credit Union. But while that might seem like an easy, convenient way to access money when you need to, it’s a move that might sorely backfire on you.

The problem with cash advances

Sometimes, emergency bills arise that require you to have money immediately. And you may be inclined to turn to your credit card if you don’t have the cash you need sitting in savings. But while a cash advance might seem like a good solution, there are some big problems you should know about.

First, you’ll typically be charged a fee for a cash advance, and that fee could be substantial. Experian says you could be looking at a fee of 5% of the sum you’re taking out. So for a $500 cash advance, that’s $25.

Also, many credit card companies impose a higher interest rate on cash advances than regular purchases, so your cash advance might cost you more than you think. Also, interest often starts to accrue on a cash advance as soon as you take out that money.

Alternatives to a cash advance

Before you rush to take out a cash advance using your credit card, you may want to consider other options, depending on the sum you’re looking to borrow. One option is to take out a personal loan, which lets you borrow money for any purpose.

Personal loans offer the benefit of fixed interest rates, which also means monthly payments that are set and predictable. And the interest rate you’ll get on a personal loan is often considerably lower than what a credit card company will charge.

If you own a home, a home equity loan is another option you can look at when you need money. Like a personal loan, it allows you to borrow money for any purpose, and your interest rate and monthly payments will be fixed. But as the name implies, this loan option will only be on the table if you own a home and you have equity in it to tap.

Now, one hiccup you might encounter with a home equity or personal loan is that lenders commonly impose minimum borrowing requirements. So if you only need a small amount of cash, these solutions may not work for you.

But some lenders do write smaller loans. So it’s worth looking into your options, especially since a personal or home equity loan might be a far more affordable way to borrow money when you need to.

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