You’ve probably received plenty of offers from your credit card issuer – urging you to use among the “handy checks enclosed” to fund a holiday, buy new furniture, or celebrate on a new wardrobe. Sometimes they even fill in the amount on one of the checks – encouraging you to lend an additional $1, 000, $2, 1000 or even $5, 000. Sometimes those checks come with an initial low interest time period, just to sweeten the offer and encourage you to take advantage of the offer. In case you actually need to borrow money during that time, the offer can be a welcome comfort. (But please don’t fall for the “splurge” enticement – it will come back to haunt you! ) You CAN use these credit card cash advances to help your financial situation, yet only if you use them carefully.
Let’s take a take a look at the situation:
If you have a credit card stability on another card and the attention has suddenly increased from 5. 9% to 25. 9%, then using a cash advance check to pay off the other balance can be a wise decision.
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But… first look at the fee charged for the cash loan. Then look at the term. Will the cash advance check at a low price keep that low rate long enough for you to pay off the balance, or will it revert to a high interest rate in only a few short months?
I’ve noticed credit card offers charging a fee of 3% for the cash advance in 1 . 9% interest – and switching to 19. 9% right after only 60 days!
Read the fine print – everything.
New regulations signed into legislation this summer will require banks to keep marketing interest rates in effect for 6 months – but will even that be long enough for you to pay off the balance? And what rate of interest will you pay if you still have an outstanding balance after those 6 months?
Following, look at the interest rate you pay on purchases. Your credit card issuer might be offering you a low rate on that cash advance, but a high rate on purchases. And under current terms, your payments will apply to the balance with the lowest interest rate until it is paid in full – then will affect high interest balances. Under the terms of some cards, your entire payment applies to the lowest rate balance as well as its interest. Interest on the higher rate balance continues to accrue, adding to that high interest rate balance every month. This will modify under the new regulations, but they won’t take effect until next year, therefore be careful. If you use a card for a cash advance, you’re probably better off not using that card for everything else.