How to Avoid Cash Advance Fees

As a millennial or small business owner, there may be a time (or multiple times) in your life where you need cash fast. Finding quick cash solutions can be daunting: How do you know you’re choosing the right option? And how can you be confident you won’t fall into debt?

One option often overlooked is the cash advance on credit cards. Understanding this financial tool can empower you to manage emergency expenses without sinking into debt. This guide will walk you through how to get a cash advance on a credit card. We’ll weigh the pros and cons of a cash advance on a credit card, and offer some practical tips along the way so you can feel empowered to make the right financial decisions for your business. 

What is a Cash Advance on a Credit Card?

A cash advance is a feature offered by most credit card issuers. It allows you to withdraw cash up to a certain limit, as opposed to making purchases directly with your card. Unlike typical transactions, cash advances come with their own set of rules, fees, and interest rates.

Cash advances provide immediate cash access, and the process isn’t complicated. You simply visit an ATM, insert your credit card, and choose the "Cash Advance" option. You can also request a cash advance through your bank or financial institution. We can’t stress this enough: You must remember that cash advances are not linked to your regular credit card limit but have a separate, often lower, limit.

While convenient, cash advances have a specific set of pros and cons. The interest rates for cash advances are generally higher than those for regular credit card purchases — and they start accruing immediately. Even more, cash advances tend to come with an associated fee, which could either be a flat rate or a percentage of the amount withdrawn.

Pros and Cons of Using a Cash Advance

Cash advances can be a lifesaver in a pinch, but it’s worth weighing the pros and cons before jumping on the opportunity. A cash advance offers immediate liquidity, which can be critical in an emergency, like unexpected medical bills or car repairs. These funds can be accessed quickly, without the lengthy application process involved in getting a loan.

But the convenience of a cash advance doesn’t come without certain drawbacks. High interest rates and immediate accrual mean that it's easy for debt to spiral if you're unable to repay the borrowed amount quickly. Plus some credit cards might not offer rewards or benefits on cash advances, diminishing any additional value you might expect.

Weighing these factors against your current financial situation can help you decide whether cash advance is the right choice. For example, comparing a cash advance with a personal loan or borrowing from friends might reveal more cost-effective alternatives depending on your needs and repayment capabilities.

Your Step-by-Step Guide to Obtaining a Cash Advance

1. Check Your Credit Card Terms: Before proceeding with a cash advance, review your credit card agreement for specific terms and conditions. Understand the applicable fees and the cash advance limit. Reading fine print can be a frustrating feat, but this fine print may share information that can change the course of your financial stability. 

2. Know Your Limit: Most credit cards have a cash advance limit, typically a fraction of your total credit limit. Verify this amount to ensure you do not exceed the available limit.

3. Consider the Costs: Similar to the first step, you’ll want to be aware of the interest rate and cash advance fee applicable to your card. Calculating these beforehand can prevent any unpleasant surprises when you receive your statement.

4. Plan for Repayment: Before you have the money in your hands, you’ll want to have a plan for how you’ll repay the advance. You’ll want to do so as quickly as possible, since reducing the outstanding balance will minimize interest costs, and alleviate the financial burden that comes with a cash advance. Revisit this plan often to make sure you stay on track. 

5. Make an ATM Withdrawal or Bank Request: Visit an ATM that accepts credit cards for cash advances or request one directly through your bank. Enter the desired amount and complete the transaction. If using an ATM, make sure it’s one that’s associated with your bank, so you avoid additional fees.

6. Track Your Spending: Keep a record of all cash advances, monitoring how they impact your credit card balance and monthly payments. This awareness can prevent you from accidentally exceeding your budget.

Tips for Managing Cash Advances Responsibly

Cash advances can be a helpful financial tool when used wisely. Here are some tips to manage them responsibly, and avoid falling into debt:

• Limit Usage: Only use cash advances for essential, urgent expenses. Avoid using them for non-essential purchases, as the costs can outweigh the benefits.

• Repay Promptly: Remember that payment plan you devised? Aim to repay the cash advance as soon as possible to reduce the impact of high interest rates. Consider setting up automatic payments or reminders to lift the burden a little bit.

• Avoid Multiple Advances: Taking out multiple cash advances can quickly lead to mounting debt. Stick to one advance at a time, and make sure it's repaid before considering another.

Alternatives to Cash Advances

There are many alternatives to cash advances that could be a better pick for you and your financial future. Some alternatives to consider: 

1. Prepaid Travel Cards: These cards can be loaded with a predetermined amount and used like a debit card. They often come with lower fees compared to cash advances.

2. Merchant Cash Advances: Merchant cash advances can be an attractive option for small business owners. This type of advance offers a lump sum of capital in exchange for a percentage of your future sales. Unlike cash advances, repayment with this alternative fluctuates with your sales volume, which can ease the burden of repayment during slower months. 

3. Business Credit Lines: Another one for business owners, this type of advance provides ongoing access to funds up to a predetermined limit, offering flexibility and control over your business finances. Unlike a loan, you only pay interest on the amount you withdraw, making it an ideal choice for managing cash flow and covering unexpected expenses.

4. Peer-to-Peer Payment Apps: Use apps like Venmo, PayPal, or Zelle to transfer money to friends or family who can then withdraw cash for you. This can be a cheaper option if you're in a bind.

5. Emergency Funds: Setting up an emergency savings account can provide a buffer for unexpected expenses, reducing the need to rely on cash advances. You’ll want to set up one of these as soon as possible, and continue to contribute to it month over month. Your future self will thank you. 

Exploring these alternatives not only helps you avoid cash advance fees but also encourages better financial planning and preparedness for unforeseen expenses.

A Final Word on Cash Advances on Credit Cards

Before you make any big financial decision, you’ll want to understand what you have to gain — and lose — by making that choice. This is true when considering a cash advance on your credit card. While they're not suitable for every situation, cash advances can provide a critical lifeline in emergencies. You’ll need to weigh the pros and cons and consider your individual needs and circumstances. 

It is possible to use cash advances responsibly; financial literacy is key here, so be sure to investigate your options, search for viable alternatives, and come up with a plan to pay back anything you borrow before you pull the trigger. All of this will set you up for a successful financial future.