When you need cash fast, your first thought might be to turn to the excess cash reserves in your emergency fund or slush fund. But if you haven’t had the opportunity to save the recommended amounts in those funds, you might be left scratching your head wondering where to turn to find cash.
Whether you are in a cash-only situation or need to pull out large amounts of cash to make a purchase immediately, there are many options for you to consider. One of the first options, if you have a credit card, is to contemplate taking out a cash advance with your credit card. This option sounds enticing because you receive the cash you need from an established line of credit.
However, there are many downsides to getting a cash advance from your credit card. Three of the main drawbacks are that interest begins to accrue immediately, the fees for the cash advance are high, and credit cards often have a limit on the amount of cash you can withdraw.
Smart Tip:
A cash advance from your credit cards is typically much lower than your overall credit limit.
What is a Cash Advance?
A cash advance from your credit card is when you use your credit card to get cash from your bank branch or ATM. This cash advance is effectively a short-term loan taken against the line of credit on your credit card. Credit card companies usually charge transaction fees or service fees once you take the cash advance. Additionally, you are charged a higher Annual Percentage Rate (APR) than regular credit card purchases.
9 Alternatives to a Credit Card Cash Advance
Credit card cash advances can be a convenient source of cash when you are in a pinch. But there are other cash advance options to consider.
Before using your credit card cash advance, consider these alternatives instead:
1. Cash In Your Credit Card Rewards
The best credit cards offer a variety of benefits to customers for using their credit cards and making payments on time. These rewards vary from travel points to cash-back offers. For example, Capital One’s Quicksilver credit card offers 1.5% off on qualifying purchases.
Look at your credit cards. If you use one of the better rewards credit cards, you might have accumulated more points than you realized. Check your account and see how many points you have accrued. You can use reward points as a credit against your credit card balance, redeem them for purchases like a new iPad, or convert them to cash. By converting your points to cash, you can choose to have your cash deposited into your savings account, which only takes a few business days.
2. Get a Loan from Friends or Family
Sometimes the best option, if you are low on cash, is to ask a family member or friend for a short low-interest loan. Depending on why you need the cash, this can be a little embarrassing. But if you keep the process very professional and make your payments to your aunt, uncle, or friend on time, it probably won’t be that big of a deal. A note of caution, mixing money with family and friends can sometimes be a recipe for relationship problems. Think long and hard about whether this is the best option for you.
3. Request a Paycheck Advance
While it might feel awkward to ask your friends and family for money, you might feel perfectly comfortable asking your employer for a paycheck advance. While there is sometimes a small fee involved, a paycheck advance can be paid back over time through deductions from future paychecks. Check with your human resources department to see if this option is available.
Are you self-employed? If you own your online business and need a paycheck advance, try asking one of your clients for a prepayment on an upcoming project fee. Freelancers and consultants can also use this playbook. These early payments are interest-free but commit you to completing the client project.
4. Buy Now Pay Later Services
Coming up with a large sum of money if you are in a cash-only situation isn’t always easy. If you need to make a large purchase, some services allow you to break up larger purchases into smaller installments which you can pay back over time. Companies like Affirm and Afterpay, offer short-term loans ranging from three months to a year in length.
Buy now pay later services are only offered for specific purchases, so it’s usually not available for essentials like groceries or rent. Like with any debt, if you quickly pay off your buy now pay later debt, it can be a terrific short-term financing option.
5. 401(k) Loan
If you have been saving for retirement with an employer-sponsored 401(k) plan, taking out a 401(k) loan can be a quick option to get cash. 401(k) plan participants can usually borrow against their personal account balance. The interest rate and fees will vary by plan, but the interest rate is comparable to bank loans. The interest rate is usually one to two percentage points higher than the current prime interest rate.
The good news is that you don’t need a credit check to secure the loans. And if you are worried about paying back your loan, you can set up automatic deductions from your paycheck to pay off the 401(k) loan over time. Repayment generally must be done in five years or less.
Learn More -> 401(k) Contribution Limits for 2024
There is a ceiling to your 401(k)-loan limit. You are permitted to borrow up to half of your total vested amount, up to $50,000. For example, if you have $40,000 vested in your 401(k) account, you can borrow up to $20,000. If you are an ultra-retirement saver with a vested 401(k) account of $500,000, you can only borrow up to the limit of $50,000.
Get Smart -> Should You Max Out Your 401(k) Contributions?
6. Overdrawn Your Checking Account
Not having enough cash can be stressful, especially in a cash-only situation. But if you have a debit card without enough cash in your account, you do have an option. You can overdraw your account to get the cash you need. Depending upon your debit card account there will be fees associated with your overdraft.
The reasons for overdrawing on your account could range from poor financial planning, to not carrying enough cash, or to having too much debt. Only you will know your financial situation, but if you are overdrawing on your account make sure you have enough funds to incur your penalty and refund your account.
7. Roth IRA Withdrawal
Borrowing money from a retirement account is always tricky. These funds are supposed to ensure you have enough money in your golden years. However, if you need cash fast, withdrawing money from your Roth IRA Account could be a good idea.
The Roth IRA is different from other retirement accounts because you contribute after-tax dollars to this account. Because of this, the IRS allows you to withdraw money at any time from your Roth IRA without penalty and without paying additional taxes. The caveat is that you don’t want to withdraw more than your historical contributions. While you can pull your contributions from your account tax-free, you may be subject to taxes and penalties if you pull your investment earnings. Keep it simple and only pull part of your contributions.
8. Credit Cards Cash-Back Promotions
Credit card companies sometimes over major awards for signing up for their credit card. These can be particularly lucrative if you have good credit. Rewards can be 0% balance transfers, travel points, cash back, or new cash deposits.
If you know that you have a major purchase coming up and need cash, signing up for a credit card that gives a promotional cashback can be a smart money move. For example, for select potential customers, Capital One’s Quicksilver credit card offers a one-time cash bonus of $300 once you have spent $500 on eligible purchases within the first three months. This is cash straight into your savings or spending account.
9. Get a Personal Loan
Credit card cash advances are usually capped in the amount you are allowed to withdraw. If you need to fund a larger project like a home renovation or buying furniture and you have excellent credit, a personal loan from a bank or credit union could be a cheaper route than a credit card cash advance.
The benefit of a personal loan is that the interest rate is usually much lower than the interest rate charged for a credit card cash advance. Additionally, you have a predictable repayment schedule.
Smart Summary
There are many alternatives to getting a cash advance from your credit card. Be creative and explore the various low-cost options available. Increasing your credit score and focusing on paying off your debt can be a proactive strategy to help you secure better lending terms. Alternatively, save an emergency or slush fund to ensure you have enough cash to handle dynamic cash-only situations. This type of financial planning is a smart money habit.
