Many consumers that are struggling with short-term financial difficulties are turning to high APR credit card cash advances to cover household bills. Statistics produced by uSwitch.com show that in excess of 700,000 people are withdrawing cash from one credit card in order to make the minimum monthly repayments on another.
What is a Credit Card Cash Advance?
A credit card cash advance is an opportunity for a consumer to borrow money against their permitted credit limit. A credit card cash advance doesn’t simply extend to withdrawing money from a cash point machine, it can also be a credit card cheque or a gambling transaction. Consumers pay a high APR and various withdrawal charges for the convenience of credit card cash advances.
Is a High APR Credit Card Cash Advance a Good Way to Borrow Money?
Using a credit card cash advance or credit card cheque represents a more expensive form of credit card debt. It is estimated by uSwitch.com that the average APR on a credit card cash advance is 29.97%. CreditAction.org have calculated that the average APR on regular credit card debt is 17.42%. This means that those borrowing money are paying a premium of 12.5%.
Is a Credit Card Cash Advance or a Payday Loan Preferable?
Consumers that are struggling with bad credit may find that a credit card cash advance represents a cheaper means of borrowing money than a Payday loan. The monthly amount of interest payable on a credit card cash advance is in the region of £2.50 per £100 borrowed. Whilst this is a high APR, it compares favourably to a Payday loan which charges £20-25 per £100 borrowed.
Avoid Credit Card Cash Advances as a Source of Long Term Borrowing
Credit card cash advances should not be construed as a source of long term borrowing. Creating £10,000 of credit card debt will result in about £3,000 of unwelcome interest per annum. This reduces future disposable income by a further £250 per month, which only serves to exacerbate financial difficulties and personal debt.
Those that already have a bad credit rating may find that a credit card cash advance is the cheapest source of short term borrowing. Whilst a cash advance can help with emergencies, such as paying the mortgage, when financial difficulties are an issue, it may be better to utilise a debt solution, such as an Individual Voluntary Arrangement, to free-up money to pay essential household bills.
Those struggling with financial difficulties and personal debt may be interested in finding out whether they have an illegal credit card or unenforceable loan agreement. Individuals that are struggling with serious debt problems may be able to write-off debt with an Individual Voluntary Arrangement, also known as an IVA.