How does apr on a credit card work

How do Credit Card Cash Advances Work? A High APR, Short Term Debt Solution for Financial Difficulties

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.


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You have several options when it comes to paying off your credit card each month: you can pay the minimum payment charge; the full balance; or what you can afford that month (providing it’s above the minimum).

While it’s possible to just meet the minimum repayment every month, this is not the most economical idea.

Minimum payments are typically very low, which can make it tempting to choose not to pay any more than this. However, this charge does not just cover money you have spent but also the interest and any fees.

As a result, it could take you years to clear your balance at this rate – and you may end up spending hundreds or even thousands of pounds in interest.

". Always do your best to pay back your credit card balance in full every month. That way, you are unlikely to pay any interest at all."

Always do your best to pay back your credit card balance in full every month. That way, you are unlikely to pay any interest at all.

It also means you don’t have to worry about the debt hanging over your head. You may have to manage your spending so that you know you can afford to pay in full every month, but this careful budgeting could make your credit card cheaper to use and may also improve your credit rating.

If you’re unable to pay your balance in full, try your best to pay more than the minimum charge. You may have the flexibility to set up a Standing Order for an amount you can afford to go towards your credit card every month so you know you’re making steady progress to clear the debt as soon as possible.

What if you don’t make any repayments at all towards your credit card debt? This could wind up not only being expensive, but could also make it difficult for you to borrow again.

If you don’t pay at all or pay less than your agreed minimum repayment, this is classed as a missed payment. Doing this just once could result in your lender imposing a late payment charge, which will be added to your balance. You may also forfeit any special interest rate you had previously been enjoying. Many credit card lenders also charge a fee for late or missed payments, which is capped at £12 per instance.

Should you miss a few more payments, the interest you owe will start to pile up. This will make it far more expensive to clear the balance. Missing these payments will also result in damage to your credit score, which could show up on your report for years and make borrowing during this time very difficult.

If you find yourself in a position where you’re unable to pay off your credit card balance at the agreed minimum rate, you should make an effort to speak to your lender as soon as possible and come up with an alternative arrangement.

However, if you use your credit card correctly and make an effort to clear the balance in full every month so you’re not charged interest, you could find it’s a great tool to have in your wallet. Not only will you enjoy your lender’s protection when you spend as well as any rewards they offer, but by using it responsibly you’re also helping to improve your credit rating – potentially opening yourself up for some of the best deals on the market when you borrow again.

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How does interest work on a cash advance from my credit card?

How does apr on a credit card work

How does apr on a credit card work

Many credit card lenders treat interest on cash advances differently than interest on regular purchases. For starters, the interest rate is often higher on a cash advance than on purchases made directly with the card. Also, any special interest promotions, such as no interest until a certain date, may not be applicable on cash advances, so you may be charged interest unexpectedly. Plus, interest on cash advances is charged from the very day that you withdraw the money, because there is not a grace period on this type of transaction.

Another consideration is that credit card lenders have the right to put any payments towards lower interest purchases first and higher interest purchases last, including cash advances. This means that the entire balance on the card must be paid off before your payments begin going toward the cash advance. So, if you have $5,000 on a card with no interest for 15 months and you take out a $500 cash advance, you will still be charged interest on the $500 cash advance for the entire 15-month period unless you pay the other $5,000 off before that date. Instead of taking a cash advance, try to use the credit card itself for anything that you can. If there is something that has to be paid and you absolutely cannot use a credit card to pay it, take out as little as possible to avoid interest on a higher amount, and be sure to try to pay your balance off as quickly as possible.

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