It’s essential to have access to money in times of emergency, such as for hospital bills, school fees, or weddings. A credit card can be beneficial in such situations.
Credit card companies also offer various deals and rewards, such as cashback and points, especially during the festive season.
Many people also use credit cards to withdraw cash, which is known as a cash advance. However, it’s essential to understand whether withdrawing money from a credit card is the right choice.
People often resort to cash advances when their debit cards need more funds. While a cash advance can be helpful in emergencies, knowing the associated charges is essential.
Withdrawing cash from a credit card should only be considered a last resort in an emergency. If you need more funds in your bank account, a credit card can help.
Once your financial needs are met, you must repay the loan promptly to avoid accumulating debt. By doing so, you can avoid asking for money from friends or relatives in times of need.
However, there are drawbacks to withdrawing money from a credit card. When you withdraw cash, you usually have to pay a charge of 2.5 to 3 percent of the initial withdrawal amount.
For example, if you take a cash advance of Rs.1 lakh, you may have to pay a charge of Rs.2-3 thousand. Additionally, a high percentage of interest has to be paid on the advanced amount every month, which can hurt your credit score.
The amount of cash you can borrow typically depends on the card limit and the cardholder’s credit profile. Generally, you can withdraw cash up to 20-40 percent of the card limit.
It’s advisable to avoid taking as much cash from a credit card as possible. Use a cash advance only in emergencies, and pay it back as soon as possible to avoid accumulating debt. Otherwise, it can become a burden.