If you are facing a financial emergency and need fast cash, then cash advances seem to be a perfect solution. Most people have signed this short-term loan because it can quickly resolve their financial distress. One important thing you need to remember is that this perfect solution is expensive. If you rely on cash advances, you may be in serious financial distress.
Danger 1: Excessive cost
Credit card companies advocate cash advances to get cash quickly in an emergency. These transactions are usually accompanied by convenience fees. In addition to this fee, you may have to pay an ATM fee when withdrawing cash from an off-network device. Every aspect of the process has some associated costs, which makes it costly.
Danger 2: Interest rate
The applicable high interest rate is another danger of using credit card overdraft cash. The annual interest rate [APR] is always higher, usually twice the percentage normally charged. Most consumers don't know about higher APR. They usually give people the same impression as other purchases on credit cards.
Danger 3: Insufficient grace period
Unlike most credit card transactions, cash advances do not provide a grace period and interest begins to accumulate immediately. After the process is completed, the balance will increase, which may result in increased costs over the original cash advance amount. This puts you in a situation where you may have to repay other amounts owed in advance.
Danger 4: Promoting bad financial habits
When you start to choose to use cash advances in all types of emergencies, it becomes easy to develop bad financial habits. This may result in a reliance on cash ready and you may not be able to set aside funds in difficult circumstances. This can lead to misuse of funds, higher interest rates and longer repayment periods. If you choose repeatedly, you may soon fall into a heavy debt burden.
When faced with difficult financial situations, it is best to think twice before looking for alternatives because the risk of using cash advances may exceed their short-term gains. Avoid falling into a debt trap that may be difficult to get rid of.