The Credit Card Cash Advance:
A Productive Tool in Disguise

A credit card cash advance has a bad reputation. We hear that it is the instant way to get into debt. You receive these offers from credit card companies every day and shred them. We too followed the crowd.

If this is your first credit card, I don't recommend this strategy until you fully understand how to use it.

How it can be misused.

Free Online Credit Card Debt Calculator

We have created a free online credit card debt calculator for our readers. Gather your debts, enter them in, and the DOLP™ number will automatically be generated. Our calculator will automatically sort your debts in pay off order.

  • Doodads. Don't use it if it's just to buy doodads like jewelry and large screen TVs. They don't produce anything for you and this activity can drive you deeper into consumer debt. It's important to be able to distinguish buying assets vs liabilities.
  • The clock is ticking. A credit card cash advance shouldn't be used to avoid paying off debt. If offered, a promotional APR is only for a limited time. If you don't pay back the funds before the time limit, the higher, original APR kicks back in.
  • Charges on charges. There is a finance charge just for the cash advance. Finance charges are one of the eroding factors of money. They can be between 1%-4%. If you do not plan on paying back this advance, then you are just compiling debt.
  • Increased debt to credit ratio. As the balance on this credit card increases, your debt to credit ratio increases. For example, let's say that your current debt is $2500 and the credit card limit is $5000. Your credit to debt ratio is 50% (2500/5000). If you take out a $5000 cash advance on a new credit card with a $5000 credit limit, your debt to credit ratio increases to 75%. An increased ratio can lower your fico score.

Example

Debt Used /Credit Available = Debt to Credit Ratio

$2500 in charges / $5000 credit availability = 50%

Take out an additional $5000 cash advance on a $5000 limit card.

($2500 in charges on one credit card + $5000 cash advance on another credit card) / $10000 total credit availability ($5000 on 2 cards) = 75%

25% increase with the cash advance

OK, a credit card cash advance can be used in a destructive manner.

But we never thought,...

...was it possible that we were throwing away opportunities? Was it possible that this could help pay off credit card debt? Was it possible that this is a productive tool in disguise?

It was at a Rich Dad Poor Dad seminar where we learned how the rich leverage this tool.

Hidden Potential

  • Fast cash. You have immediate use of funds. There is no waiting period. We learned that the rich use this tool when capital is quickly needed for an opportunity.
  • You qualify. If your request is within the credit card cash advance limit, then you qualify. There is not credit check. How great is this financial freedom resource in an emergency?
  • Leverage. You have the opportunity to leverage other people's money (OPM) while keeping yours in tact. Imagining borrowing this money at a low rate to invest it in an investment at a higher rate.
  • Sidestep credit score impacts. Unlike credit card balance transfers, cash advances themselves won't affect your credit score unless your credit score is pulled and your debt to credit ratio is high. (Keep it under 30%).

Creative Way to Use a Credit Card Cash Advance

When we purchased the Bob Proctor coaching program to deepen our millionaire mindset (something productive), we had to decide how we were going to pay for it.

We could pull money from our ING savings account but that would mean taking money from our emergency fund. We could charge it on our American Express Credit Card but we would then have a balance and pay monthly on it, incurring interest costs.

Then my wife pulled out an offer from our Mastercard: 0% interest for 12 months on a cash advance.

Here's what we did. We charged the course on our American Express Credit Card (the best cash back credit card in my opinion), earning us back 1% on the charge (cash back). We turned around and took out a cash advance on our Mastercard (paying a 3% finance charge).

We had 12 months to pay for this loan. This may sound bad, but we had a plan. Before the 12 month anniversary date, we took out a policy loan on one of my life insurance policies. That is one of the advantages of whole life insurance.

This loan balance is now being paid back on our terms, with inflated dollars.

While the credit card cash advance has earned its bad reputation, when used wisely, it can be used to achieve financial freedom. You can use the money for investments like a down payment on an investment property, learn how to pay off credit cards, to deepen your personal growth, or to use in an emergency.

The credit card cash advance is another tool in the toolbox to help one down the path to financial freedom when used in a productive manner.

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