Credit cardholders have access to various financial products that can help them manage short-term cash flow issues. A credit card cash advance, for instance, allows cardholders to borrow cash against their credit limit, providing quick financial relief, especially during time-sensitive emergencies, like unexpected medical events and urgent property repair needs. While cash advances offer undeniable convenience, they aren’t a long-term financial solution. Relying solely on this option during emergencies can lead to financial strain, as high interest rates and additional fees, which often come with cash advances, can accumulate quickly, making it difficult to repay the borrowed amount.
Without careful management, cash advances can compound financial challenges rather than resolve them. Thus, to make the most of this financial tool, credit cardholders must approach it with self-discipline and a clear repayment plan. This article explores why practicing self-discipline is essential when using a cash advance, helping you avoid common pitfalls and maintain financial stability.
Prevents Accumulation of Debt
As previously mentioned, cash advances come with high interest rates and additional fees, such as transaction fees and withdrawal charges. Each time you take out a cash advance, these fees are applied immediately, and they quickly add up if not paid off promptly. Without the discipline to repay the amount borrowed as soon as possible, you can quickly find yourself in a cycle of growing debt. The longer the balance remains unpaid, the more interest is charged, which can result in significant financial strain. Therefore, practicing self-discipline in managing and repaying the cash advance ensures that the borrowed amount does not snowball into a larger debt burden, keeping finances in check and avoiding long-term financial stress.
Avoids Overextension
While credit card cash advances may offer immediate relief, they come with a limit based on the available credit on the card. Overusing this option can quickly lead to maxing out the credit card, making it harder to manage other expenses. Without discipline, there’s a temptation to borrow repeatedly, stretching the credit limit and putting yourself at risk of exceeding your repayment capacity. As such, practicing restraint and only borrowing what is necessary helps you maintain control over spending.
Ensures You Maintain a Positive Credit Standing
Cash advances can impact your credit score if not managed carefully. If repayments are missed or only partially made, it can lead to late fees, penalties, and increased debt, all of which can negatively affect your credit standing. Ensuring that you make timely payments will help guarantee that the use of the cash advance does not result in financial setbacks that could impact your future borrowing potential. Maintaining a positive credit standing is crucial for securing better financial opportunities, such as low-interest loans or higher credit card limits.
Tips for Responsible Cash Advance Usage
To make sure that cash advances serve their intended purpose without creating additional stress, it’s important to approach them with caution and discipline. This section outlines the effective strategies for using cash advances responsibly, ensuring you maintain control over your finances and avoid unnecessary debt.
Set a Spending Limit for Cash Advances
Before taking out a cash advance, it’s recommended to carefully assess your immediate needs and only borrow the amount necessary to cover those expenses. Setting this limit helps you avoid impulsive borrowing and ensures you don't end up with more debt than you can handle. Some banks and credit card issuers enable you to set a spending limit on your credit card cash advance through their respective online portals and apps. For instance, Maya—the number one digital bank in the Philippines—allows Landers Cashback Everywhere Credit Card holders to assign a daily spending limit to their cash advance transactions via the Maya app. All they have to do is follow these steps:
- Log in to Maya and go to Cards
- Select their credit card
- Tap the gauge icon to open the Limits and Controls screen and set a limit
When opting for a cash advance with Maya, cardholders can only borrow up to 30% of their assigned credit limit. Assigning a limit can give you better control over your spending and make it easier to manage repayments without exceeding your budget.
Avoid Taking Multiple Cash Advances at Once
Taking out multiple cash advances at once can quickly spiral into overwhelming debt. As mentioned earlier, each cash advance comes with its own set of fees and high interest rates, and the more you borrow, the harder it becomes to keep track of your repayments. Additionally, multiple cash advances can max out your credit card, making it difficult to use the card for other expenses.
Instead of taking out multiple cash advances, consider alternatives, such as personal loans or lines of credit. Limiting your use of cash advances can protect your credit limit and avoid financial overextension.
Refrain From Using Cash Advances for Non-Essential Purchases
Cash advances should be reserved for true emergencies, not for non-essential or luxury purchases. Using a cash advance to buy items that aren’t urgent, such as vacations or high-end gadgets, can lead to long-term financial struggles. Since cash advances come with high interest rates and fees that accrue immediately and not at the end of the grace period, borrowing money for unnecessary items can quickly become more costly than the initial purchase. Reserving cash advances for actual emergencies ensures that you use this tool wisely and won’t put yourself in a situation where you’re paying for non-essential things with borrowed money.
To help you determine whether taking out a cash advance is necessary, ask yourself if the expense is urgent and unavoidable. You should also consider whether there are other financial options available that could be less costly in the long run. For example, if you’re faced with an unexpected car repair, you might explore a personal loan with a lower interest rate or see if you can pay the repair shop in installments, rather than using a cash advance with its high fees and interest. Weighing your options carefully ensures that you’re borrowing only when absolutely necessary and in the most cost-effective way possible.
Credit card cash advances can be a lifeline in emergencies, but they come with risks if not managed responsibly. The high interest rates and fees tied to cash advances can add up rapidly, increasing the risk of falling into a cycle of debt. However, if you exercise discipline and make thoughtful decisions, you can use cash advances without letting it create unnecessary stress or long-term debt.
