Introduction
A balance transfer is the transferring of debts from an existing credit card to a new credit card to save on interest whereas a cash advance is when you use a credit card to get cash either through an ATM or by transferring the money to your bank account. Some credit card companies let borrowers do balance transfer checks which borrowers can use to pay off one credit card debt and transfer it to a new card. A few offer convenience checks which you can use for things other than just balance transfer. These checks are usually considered as cash advances.
What’s a balance transfer?
A personal loan balance transfer is a type of transaction that transfers a balance from one credit card to another. Balance transfers are typically used to pay off high-interest-rate balances by transferring them to a credit card with a temporary 0% interest rate. If the new credit card limit is really high, then balance transfers can be beneficial for consolidating multiple credit card debts.
Benefits of a balance transfer?
Balance transfers have a lot of benefits, especially with the promotional low-interest period.
- Depending on the balance transfer terms, you get up to 21 months to pay off the balance without paying interest on the balance transfer card.
- Consolidating multiple debts into a single card can simplify your debt payments. You will be under a lot less stress if you don’t have too many payments and due dates to juggle.
- With the 0% interest rate offer, your full payment gets added to your balance which can help you pay off your debt faster.
What is a cash advance?
A cash advance is borrowing cash from your available credit. It’s basically a short-term loan taken out on a credit card. You can get a cash advance by doing either of the following:
- Visit the bank branch
- Making a cash-like transaction
- Withdrawing cash from an ATM
- Applying for a convenience check
Benefits of a cash advance?
Cash advances come with a lot of benefits, some of which are:
- If you are in an emergency where you don’t have access to your debit card, a cash advance allows you to borrow money against your credit limit.
- As long as you have credit, you can use your credit card to get cash without having to apply for a new debt. You can also avoid the potential damage of a new credit check or inquiry and the possibility of having the loan application rejected.
- Depending on your credit card terms and conditions, you get to have the flexibility to repay cash advances with minimum monthly payments over time.
When to use balance transfers?
It would be best to consider using a balance transfer to pay off debts with high interest rates or big purchases. The low interest rates on balance transfers are temporary, so be sure that you can afford the payments even after the promotional period ends.
Lenders do require you to have good credit score to qualify for the best possible interest rate. If you have a low credit score then you might not be eligible for balance transfers.
When to take out a cash advance?
If you are strapped for cash but have bad credit, then cash advances will be an ideal option for you. Cash advances don’t require a credit check which would be helpful for borrowers who have average credit scores or high credit utilization.
However, cash advances are treated as a last-ditch method and should be regarded with caution. They are convenient but are expensive because of the high interest.
Conclusion
While a balance transfer can be a helpful tool to improve your credit card debts, cash advances are usually considered a bad idea. If you are in a financial emergency, you should look for alternatives first before deciding to opt for a balance transfer or cash advance. If you are looking to consolidate credit card debts or pay down high-interest debts, analyze your credit report first. Understanding your credit report can figure out your options better.