Credit Limit and Cash Advance: What You Need to Know

Your credit limit is the maximum amount you can charge to your credit card, but did you know that going over this limit can result in fees and damage to your credit score?

A cash advance is a short-term loan that allows you to withdraw a specific amount of money from your credit card, but it's essential to understand the terms and fees associated with it.

Most credit cards come with a cash advance limit that's separate from your regular credit limit, and this limit is typically lower.

Cash advances often come with higher interest rates and fees compared to regular purchases, so it's crucial to use them wisely.

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A credit limit is the maximum amount of money you can borrow with your credit card. It's like a safety net that your credit card issuer sets to prevent you from overspending.

You can typically get a cash advance in a few different ways, including at an ATM, in person at your bank, or using a convenience check.

The amount of money you can borrow as a cash advance is usually a percentage of your credit limit. For example, if your credit limit is $10,000, and your card issuer caps cash advances at 30%, you could borrow $3,000 in total.

Some credit card issuers also have a daily limit on cash advances, often a few hundred dollars per day.

Here's a breakdown of how cash advances work:

You can withdraw anywhere from $100 to 30% of your credit limit through a cash advance.

A cash advance can be a reasonable option in some cases, but it's essential to consider all your options before making a decision. It can be a costly way to get money, especially if you're not careful.

A cash advance can be a bad idea if you're just before declaring bankruptcy, as it can be considered fraudulent and may not be forgiven in bankruptcy. Credit card debt does not magically disappear in bankruptcy, and your creditors will examine your debts.

Using a cash advance to pay a credit card bill is also not a good idea, as it will likely sink you deeper into debt with immediate interest charges and added fees. Similarly, using a cash advance to buy something you can't afford is never a good idea, as it will only add to your financial problems.

Here are some situations where a cash advance might not be the best option:

Cash advances can be a reasonable option for someone with an emergency need for money and limited resources, especially if they have a plan to pay it back within a short period. However, this option has its downsides.

A cash advance can be a costly way to pay bills, with immediate interest charges and added fees. This can sink you even deeper into debt if you're not careful. In fact, using a cash advance to pay a credit card bill is likely to make things worse.

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There are situations where a cash advance is a bad idea. For example, if you're planning to file for bankruptcy, a cash advance immediately prior to filing can be considered fraudulent and may be excluded from the debts that are forgiven in bankruptcy.

Using a cash advance to buy something you can't afford in the first place is never a good idea. It's like digging a deeper hole for yourself.

Here are some scenarios where a cash advance is not recommended:

When making a purchase on your credit card, it's essential to know the difference between a standard credit card purchase and a cash advance.

A cash advance begins accruing interest immediately, unlike a standard credit card purchase which typically offers a grace period between the purchase date and the payment due date.

Cash advances come with transaction fees and higher interest rates than credit card purchases. For example, one widely held card recently charged from 21.49% to 28.49% on purchases, but 29.99% on cash advances.

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The interest rates for cash advances are significantly higher than those for standard credit card purchases. This is a crucial difference to understand when using your credit card.

Here's a comparison of the interest rates for cash advances and standard credit card purchases:

This difference in interest rates can add up quickly, making it essential to understand the difference between a standard credit card purchase and a cash advance.

You can get a cash advance with any Discover Card from participating banks, ATMs, and credit unions.

To use a credit limit and cash advance, you'll need to set up a PIN with your credit card issuer, which is required for ATM withdrawals.

The cash advance limit is subject to your credit card issuer's policies, and the ATM may also have a limit on how much you can withdraw in a single day.

You can withdraw cash from your credit card account using an ATM, but you'll need to insert your credit card and use your PIN.

You can also visit a bank or credit union teller to get a cash advance from your credit card account, but you'll need your credit card and a photo ID.

Convenience checks can be requested from your credit card company, but once they clear, your credit issuer will deduct the amount from your credit limit.

An online transfer is another way to pull cash from your credit card, which typically gets deposited into your checking account within a few days.

Keep in mind that an online transfer may take a few days, unlike an ATM withdrawal which can get you cash immediately.

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Fees and costs are a crucial aspect of credit limits and cash advances. You can expect to pay a cash advance fee, which is typically a set dollar amount per transaction or a percentage of the total cash amount taken from your credit card account.

The cash advance fee can range from $10 to 3% to 6% of the cash advance amount, whichever is greater. This fee is charged upfront, and you owe it even if you pay the money back the next day.

A cash advance balance is separate from your regular credit card balance, and interest starts accruing on cash advances right away. The cash advance APR is usually higher than what you owe for spending on your credit card.

You may also incur an ATM fee, which can be charged by your bank or credit union network. Additionally, foreign cash advances can come with extra fees, including foreign transaction fees, ATM fees, currency conversion fees, and cash advance fees.

To illustrate the costs, consider a $500 cash advance with a cash advance fee of 5% ($25) and an ATM fee of $2.50. In this case, you'd pay a total of $99.50 in interest and fees over 12 months.

Here's a breakdown of the costs associated with a $500 cash advance:

Keep in mind that paying more than your minimum monthly payment can help you pay off your cash advance balance quicker.

Borrowing money from family or friends can be a cost-effective option, but make sure you create a repayment plan to maintain a healthy relationship.

Asking for a loan from family or friends can be uncomfortable, but it's often the most affordable way to get the cash you need.

You can also consider taking out a personal loan, which usually offers better terms than a cash advance and can provide access to more cash if you have good credit.

Personal loans typically come with a fixed interest rate that's lower than the APR charged by credit card issuers.

Here are some alternative options to consider:

In extreme situations, a cash advance may be the only option, but make sure you have a plan to pay it back quickly to avoid accumulating debt.

A cash advance might seem like a quick fix, but it's essential to consider the costs. You'll end up paying $99.50 in interest and fees if you take out a $500 cash advance and only pay $50 a month.

The APR on a cash advance can be as high as 400% when you combine all the fees, which is much higher than what you'd pay with a personal loan. Personal loans usually offer better terms, and you can have access to more cash if you have good credit.

You might be tempted to take a cash advance on your credit card, but it's an expensive way to borrow money. The cash advance fee alone can be $25, and you'll also have to pay an ATM fee of $2.50.

Borrowing money from a friend or family member can be more affordable than a cash advance since there won't be any fees or interest charges. Just make sure you agree on how you'll pay the person back so there's no awkwardness involved.

Here are some alternatives to consider:

Ultimately, it's crucial to understand the short and long-term costs of any borrowing before making a decision.

Payday loans are notorious for their sky-high interest rates or fees, sometimes as high as 400% in APR terms.

These loans are often limited to $500 or less and are based on the borrower's next paycheck. They're outlawed or restricted in many states due to their predatory nature.

Payday alternative loans (PALs) are a more affordable option, typically ranging from $200 to $1,000 and needing to be repaid in one to six months.

Some employers offer payday loans or advances on paychecks as a service to their employees, often with no fees or interest charged.

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If you're considering a cash advance, you should know that you can't just return the cash and get your money back. Most credit card issuers charge a cash advance fee every time you take a cash advance, which is often around 2 to 5% of the transaction amount.

You'll also have to pay off the cash advance immediately, with no grace period to worry about. The average cash advance APR is about 24.7%, which is significantly higher than the rate for credit card purchases.

If you're not careful, you could end up paying a lot more in interest and fees than you initially borrowed. To give you a better idea, here's a breakdown of the different types of cash advance fees:

So, think carefully before taking out a cash advance, and make sure you understand all the fees and interest rates involved.