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For help during difficult financial times

How You Can Get the Money You Need Quickly

Everyone has been there. An emergency comes up - maybe you have an unexpected medical bill or your car breaks down - and you need some money right away.

One option often considered by cash-strapped individuals is a short-term loan. Most credit cards offer a cash advance option for consumers, and this option might seem like a good solution for those who need funds in a hurry.

However, there are significant risks involved with this practice of which consumer should be aware. Before using their services for a loan, consumers should consider these risks carefully, or they could find themselves in an even worse financial situation.

Potential Risks to Think About

There are two primary potential pitfalls associated with this sort of short-term financial solution:

Additional Costs to Consider

The majority of lenders will charge customers a fee in order to access funds. These charges can range from 1 to 4 percent, and many providers will charge a flat fee regardless of the amount you borrowed.

Companies also employ a system that is based on a combination of a percentage-based rate and a flat fee. For example, they might charge 4 percent or $20, depending on which amount is greater, for the privilege of borrowing.

In this case, if you used it to obtain an advance of $200, you might think that you will only need to pay $8, or 4 percent. However, because the percentage-based charge is lower than the minimum one of $20, you will end up paying a $20 fee for accessing $200, which amounts to a 10 percent access charge.

Interest Rates

The interest rates for the majority of borrowing services is significantly higher than the normal ones associated with a card. They often range from 20 to 25 percent versus an average of 15.88 to 17.3 percent for purchases.

In addition to charging more, most providers will apply payments to any balances with lower interest before applying payments toward the balance you owe, which means that if you obtained $200 upfront at the higher cost but have a balance of $1,000 at the lower interest rate, you will accrue interest on the $200 at the higher rate until the $1,000 balance is paid off. Additionally, if you use the card to make purchases at the lower one before paying off the remaining balance, any payments will go toward your new balance first.

Furthermore, most of these services have no grace period, which means that you begin accruing interest immediately. Many responsible consumers will pay their balances in full every billing cycle in order to avoid paying interest on their purchases. However, when you borrow, you will have already accrued interest by the time the billing period ends.

Who Could Benefit

So, should all short-term borrowing services be avoided? The answer is not necessarily. The caveat is those who rely on borrowing should use this financial tool carefully.

Because of their costs and high interest percentages, these services should not be used as a debt-relief solution. Those who make this mistake often find themselves even deeper in debt.

However, if you have a card that does not already carry a balance and you plan to pay off the balance quickly in order to avoid paying the higher interest amount over the long-term, then this option might work for you.