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Last Resort: A Credit Card Cash Advance

Cash advances are better than payday loansIn a perfect world, the need for a cash advance would never exist.

Credit card issuers routinely charge more than 20% APR for a cash advance — and also throw in a transaction fee.

Depending on how long it takes to pay off, you could end up paying more in interest and fees than the advance was worth.

But we don’t live in a perfect world, and sometimes emergencies happen. In fact, there are instances in which a cash advance is the smart financial decision.

You read my words correctly: I said a smart financial decision.

Let’s say that a $1,000 rent payment is due in a few days and your bank account is tapped out.

Unfortunately, your landlord will only take cash, check or money order payments (not a credit card), so your options are limited. If family and friends are not able to provide you a loan, you’re stuck.

Some will resort to a payday loan for the money, which should be avoided at all costs. Not only do payday loans charge much higher interest rates (annualized they can reach 300% to 500%), they also have hefty up-front fees.

A cash advance on your credit card can come in handy here, offering the money you need without crushing your financial future.

Assuming you can pay back a $1,000 advance in six months with a 30% APR and 3% fee, the total cost would be just south of $200.

Yes, that’s a lot of money to be out in a short amount of time but what else can you do?

Cash advances should be considered a last resort, and if you have to use one, make sure it’s the only one you’ll ever need.

The lesson here should be to keep an emergency fund so that you’ll never need a cash advance, but utilizing one isn’t the end of the world. Just make sure you pay it off as fast as you can.

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