Credit cards are widely used purchasing devices that allow individuals to buy goods and services on credit and then the individuals pay their lenders back on a schedule that was established when they secured their cards. Responsible use of a credit card can help a Rockland resident build up a good credit history and credit score; conversely, negligent credit card use can land a person in dire financial straits and facing overwhelming debt.
One practice that often backfires on a credit card holder is the use of a cash advance. A cash advance on a credit card is much like a credit card charge, but, instead of using the card to buy something, the advance allows the credit card company to give the card holder money in the amount of the advance. In theory, a cash advance may seem like a very good way to tide oneself over during lean times, but, in reality, it can be a damaging endeavor that leads a person to bankruptcy.
The reason for this is because credit card companies generally charge much higher interests rates on cash advances than they do on regular charges. An interest rate on a cash advance may be two or three times higher than the applicable card rate and the credit card company may also charge extra fees on top of the interest it charges for granting the cash advance.
A small cash advance can balloon into a large credit card debt if a person does not have the financial capacity to quickly and completely pay it off. However, individuals who have the ability to pay off debts in a timely manner generally are not in need of cash advances. Cash advances therefore have the potential to be extremely damaging loans that can force individuals to make difficult decisions about how they will remedy their financial shortfalls.