Balance Transfers vs. Cash Advances: What You Need to Know

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Understanding Balance Transfers and Cash Advances

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding balance transfers and cash advances. For any mortgage service needs, call us at 213-732-3074.

What Is a Balance Transfer?

A balance transfer involves moving a balance from one credit card to another, often to take advantage of a lower interest rate. This can be particularly useful for paying off high-interest debt or consolidating multiple balances.

Pros of Balance Transfers

Balance transfers offer several benefits:

• Interest-Free Period: You can get up to 21 months to pay off your transferred balance without paying any interest.
• Consolidate Balances: Simplify your payments by consolidating multiple balances onto a single card.
• Faster Debt Repayment: With 0% interest, your full payment goes towards the principal, helping you pay off debt faster.

Cons of Balance Transfers

However, there are some drawbacks:

• Transfer Fees: Balance transfers often come with a fee, typically 3% to 5% of the amount transferred.
• Temporary Low Rate: The promotional rate is temporary, so you need to pay off the balance before it expires.
• Risk of New Debt: You may be tempted to use the freed-up credit, leading to more debt.

What Is a Cash Advance?

A cash advance allows you to borrow cash from your available credit. This can be done through an ATM, bank branch, or using a convenience check.

Pros of a Cash Advance

Cash advances offer some advantages:

• Emergency Cash: Access cash quickly in an emergency.
• No Credit Check: As long as you have available credit, you can get a cash advance without a credit check.
• Flexible Repayment: Depending on your card terms, you can repay the advance over time.

Cons of a Cash Advance

However, there are significant drawbacks:

• High Interest Rates: Cash advances often carry the highest APR on a credit card.
• Fees: Cash advances come with fees, typically 3% to 5% of the transaction amount.
• No Grace Period: Interest starts accruing immediately, with no grace period.

When to Use a Balance Transfer

Consider a balance transfer to pay off high-interest debt, consolidate multiple balances, or pay off a large purchase. Ensure you can pay off the balance before the promotional rate ends.

Why Avoid Cash Advances

Cash advances come with high fees and interest rates, making them a costly option. Consider alternatives like using your emergency fund, charging a transaction to your credit card, or applying for a personal loan.

Alternatives to a Cash Advance

Before opting for a cash advance, explore these alternatives:

• Emergency Fund: Use savings set aside for unexpected expenses.
• Credit Card Purchase: Charge the transaction to your credit card instead.
• Payroll Advance: Ask your employer for an advance or use a salary advance app.
• Personal Loan: Apply for a personal loan for more flexibility.
• Borrow from Family or Friends: This can be more cost-effective but may impact relationships.
• Change Plans: Postpone non-emergency purchases and save for them instead.

The Bottom Line

While balance transfers can be a useful tool for managing credit card debt, cash advances are generally not advisable. Always explore alternatives before using your available credit for cash.

If you’re considering a balance transfer to consolidate credit cards or pay down high-interest balances, check your credit report and score first. For any mortgage service needs, call O1ne Mortgage at 213-732-3074.

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