Emergencies are unavoidable, and almost all of us are faced with situations that require money to be resolved. In times of cash-only emergencies, we turn to our friends, colleague, and relatives to borrow a certain amount. Sometimes we also turn to online lenders who can provide us with short-term loans. Credit cardholders won't have the problem of searching for people who can lend money because they can make use of cash advances in credit cards. 

What is a cash advance in credit cards? 

A cash advance is a short-term loan you can make with your credit card. It is a credit card feature you can use to withdraw money for cash-only situations. Providers allow you to withdraw a percentage of your credit limit to be turned into cash. It’s a quick and expensive way of getting hold of available money in an instant. 

 

credit card

 

The moment you received your card, you also receive a different set of envelopes with contains your cash advance pin. This pin is randomly assigned to your card and can be changed once the credit card is activated. This can be used to withdraw money over the counter or through automated teller machines. 

Why are cash advances expensive? 

Cash advances made with your credit card is expensive because it comes with a lot of fees. You may need to cover for processing fees, withdrawal fees, and interest charges, which are usually set at 3.5% to 3.75% of the withdrawn amount. Some providers like international banks may not have ATMs available, so you need to withdraw from other banks and pay for transaction fees. 

Cash advances in credit cards are costly because the plastics save you from the stress of finding a lender who could hand down the money quickly. Some credit card providers also impose the interest charges that moment you withdraw the money. There is no need for you to wait for your due date because interests start racking up from the day of withdrawal. 

 

credit card

When to use cash advance in credit cards?

Credit card cash advances are helpful in the following cash-only situations:

1. When you need to pay for something with interest higher than the charges in your cash advances

For instance, you have an outstanding online loan with an interest of 15% per day; it is wise to use the cash from your credit card, which comes with a minimum interest of 3.5% per day. This way, you can close a loan with a higher effective interest rate and lower down your payments. 

2. When you need to pay for utility bills

Not all utility companies, especially in the provinces, accept online and cashless payments. Although it is not advisable to pay utility bills with credit card cash advances, it may sound practical to do so, especially if we are talking about family comfort. There are times when your salary gets delayed, and you can’t pay within your electricity due date, cash advances can help not to compromise your children’s ease at home. 

 

hsbc

 

3. When you have a more than half of your credit limit left

Providers allow you to withdraw a portion or percentage of your credit limit as a cash advance. If you already used up more than 30% of your credit limit, it may not be wise to withdraw the rest. This may take a toll on your credit score, and you might find it difficult to pay when you see your credit card bills racking up. Opt for a cash advance if you have enough left on your card limit, and if you are sure, you can return the cash immediately. 

READ: Should You Use Credit Cards To Fund Your Business?

How to manage cash advance in credit cards?

Knowing that you can get hold of cash quickly can be very tempting. Credit cardholders with limits up to Php2 million and more may withdraw a minimum of Php1million. This amount is incredibly mouthwatering, especially when you know how easily you can get hold of the money. 

Here are a few ways to manage your cash advances:

1. Take out only what you need

Never withdraw more than what you require. The little extra still comes with fees, and you might not realize at once that this can work for your disadvantage. 

2. Withdraw the money you need all at once

Before heading to the bank or the automated teller machines, make sure you’ve already made some computations. You should already know the total amount of money required and withdraw at the same time to avoid incurring several processing fees. 

 

credit card

 

3. Don’t use your credit card until the withdrawn amount is paid

Once you’ve used your credit card for a cash advance, you might want to leave them unused until the money borrowed is returned. This will prevent you from incurring more debts and paying for more fees. 

4. Know how much you are allowed to withdraw

Your opportunity comes with another price tag when you withdraw more than what was set by your provider. The cash advance limit is not your total credit limit, and banks may charge you with over-the-limit- fees and higher interest rates. 

5. Read the credit card terms and conditions

Whether you own a single credit card or various plastics, understanding the terms and conditions will help you manage cash advances. Compare the interest rates imposed on your cards and opt for the once with the; lowest fees. Understand how you can stay away from cards that impose interests on interests and high processing fees. 

READ: Credit Card-Linked Loan: Is It Good For You?

6. Look for alternatives

There are still a lot of loans out there which might come with low charges and fees. Call your credit card providers with credit card-linked loans that come with a minimum of 0.39% monthly interest rate. Aside from credit card-linked loans, you can also search for online money lenders who have lower monthly fees. 

 

Final thoughts:


Credit cards are helpful when their features are maximized to your advantage. Assessing your cash-only situation would help you decide whether to withdraw from your credit card or not. Prevent emergencies that can lead you to incur new debts by coming up with a budget scheme and avoiding unnecessary spends. If you’re caught up in dire situations and you have no choice but to withdraw from your credit card, make sure you return the money as soon as possible. 

 

People also read:

Everything You Need To Know About Credit Cards in the Philippines

We tell you everything about credit cards in the Philippines, how they work, and what you need to qualify.