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or taking a cash advance, can be useful if you need cash quickly, but it’s
important to understand the costs, risks, and potential alternatives. Cash
advances often come with higher fees and interest rates than regular purchases,
so it’s essential to use them wisely. This guide explains different ways to
cash out your credit card, tips to minimize fees, and alternative options that
might be more cost-effective.
1.
Common Methods to Cash Out a Credit Card
a)
ATM Cash Advance
Withdrawing cash from an ATM is one
of the most direct ways to get cash from your credit card. However, it
typically comes with a cash advance fee and immediate interest.
- How It Works:
- Insert your credit card at an ATM.
- Enter your credit card PIN. (If you don’t have one,
you’ll need to set it up with your issuer.)
- Withdraw cash within your card’s cash advance limit.
- Cost:
ATM cash advances usually have a transaction fee (around 3%-5%) and a
higher APR, with interest starting immediately.
b)
Bank Teller Advance
You can also go to a bank branch to
get a cash advance from a teller. This can be more secure than an ATM, especially
for larger amounts.
- How It Works:
- Visit a branch of your card’s issuing bank.
- Show identification and request a cash advance from
your credit card.
- Cost:
The fees and interest are similar to ATM withdrawals, but bank teller
advances may be preferable for higher sums or if you’re near a bank
location.
c)
Cash Advance Checks
Some credit card issuers provide
cash advance or “convenience” checks. These checks can be deposited into your
bank account, giving you flexibility.
- How It Works:
- Use the cash advance checks provided by your card
issuer.
- Write a check to yourself and deposit it in your bank
account.
- Cost:
These checks usually come with the same fees and immediate interest as ATM
and bank teller advances.
d)
Digital Wallet Transfer
Certain digital wallets, like PayPal
and Venmo, allow you to link a credit card and transfer funds to your bank
account. However, this might be treated as a cash advance.
- How It Works:
- Link your credit card to a digital wallet.
- Transfer funds from the credit card to the wallet, and
then to your bank.
- Cost:
Some wallets charge fees for credit card transfers, and the transaction
may also incur cash advance fees, depending on your issuer.
2.
Strategies to Minimize Fees and Interest on Cash Advances
Since cash advances tend to be
expensive, it’s wise to manage costs wherever possible. Here are some
strategies to help minimize the expense:
- Use a Low-Interest Credit Card: Some credit cards have lower interest rates
specifically for cash advances, which can help reduce costs.
- Repay Quickly:
Interest starts immediately on cash advances, so paying it back as soon as
possible can save on interest.
- Monitor for Promotions: Occasionally, credit card companies may offer
limited-time promotions on cash advance fees or interest. Check with your
issuer to see if there are any available offers.
3.
Advantages and Disadvantages of Cashing Out Credit Cards
Cash advances can be beneficial in
emergencies, but they come with downsides. Here’s a quick look at the pros and
cons:
Pros
- Immediate Access to Cash: Cash advances offer a quick way to get funds, making
them helpful in urgent situations.
- Convenient Options:
There are several ways to access cash, from ATMs to bank tellers and
digital wallets.
- No Loan Application Needed: Cash advances can save time and effort compared to
applying for a loan.
Cons
- High Fees and Immediate Interest: Cash advances carry high fees and interest starts
right away, making them one of the more expensive forms of credit.
- Potential Impact on Credit Score: High utilization rates due to cash advances can
affect your credit score.
- Lower Limits:
Cash advance limits are usually lower than your credit limit, so the amount
you can access is restricted.
4.
Alternatives to Credit Card Cash Advances
Before resorting to a cash advance,
consider if any of these alternatives might better meet your needs at a lower
cost:
a)
Personal Loans
Personal loans typically come with
lower interest rates than credit card cash advances and can be a good option if
you need a larger sum.
- Pros:
Lower interest rates, fixed monthly payments.
- Cons:
Approval process may take a few days, and a good credit score is often
required.
b)
Peer-to-Peer Lending
Peer-to-peer lending platforms, such
as Upstart or LendingClub, can provide relatively quick access to funds at
reasonable rates.
- Pros:
Competitive interest rates and flexible terms.
- Cons:
Some platforms may charge origination fees.
c)
Borrow from Family or Friends
For smaller amounts, asking family
or friends can be an option that avoids interest and fees altogether.
- Pros:
Typically no interest or fees, flexible repayment.
- Cons:
Could strain relationships if not repaid promptly.
d)
Payday Alternative Loans (PALs)
Some credit unions offer payday
alternative loans with capped fees and lower interest than traditional payday
lenders.
- Pros:
Lower costs compared to payday loans and cash advances.
- Cons:
Usually limited to small amounts and may require credit union membership.
5.
Key Considerations Before Cashing Out a Credit Card
A cash advance can be useful, but
it’s essential to assess your financial situation and understand the costs:
- Understand Fees and Terms: Each card issuer has its own fees and rates for cash
advances. Make sure you know the exact costs.
- Monitor Your Credit Utilization: Frequent cash advances can raise your credit
utilization rate, potentially lowering your credit score.
- Have a Repayment Plan:
Plan to pay off the cash advance as soon as possible to minimize interest
charges.
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