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Should You Ever Use a Credit Card Cash Advance?

By U.S. News & World Report

A credit card pricing and terms sheet inundates new customers with grids of information. Buried somewhere between the annual membership fee, transaction fees and penalty APR is a line about cash advance APR and the associated fee. The high numbers should be enough to keep even the most financially illiterate far away from taking money out of an ATM with a credit card — but is it sometimes a good option?

There comes a time in many people’s lives when money in a checking account won’t cover the bills before the next payday. While learning to budget is sound advice, it doesn’t help to hear it when rent is due and the car suddenly won’t start. Many people in dire need of quick cash turn to one of two forms of predatory lending: payday loans or title loans.

Payday lenders provide quick access to cash with no credit check needed, but it comes with a hefty price.

If Sam needs $300 in cash to get the car fixed, but doesn’t have the money, he can borrow $300 from a payday lender. The lender charges a $15 fee for every $100 borrowed, so Sam is paying $45 to borrow $300 for two weeks and will owe back $345. If he’s unable to make the payment at the end of two weeks, then he can renew the loan, which will send him into debt that’s often hard to dig out from.

Title loans require a borrower to give the lender a car title as collateral against the loan, which often needs to be repaid within 30 days — plus a fee of course.

Cash Advance Versus Payday Lending

What if Sam used a credit card cash advance to get access to $300? Cards like Chase Slate and Discover it charge a fee for a cash advance ($10 or 5 percent, whichever is greater) and then an APR of 24.99 percent.

Upfront, it will cost Sam $15 to take out $300 (possibly $18 if he gets hit with a $3 ATM surcharge).

There is no grace period on interest charged with a cash advance. Sam’s $300 is sitting at a 24.99 percent APR from the day it’s taken out, the daily interest rate being 0.068 percent (if the bank divides 24.99 percent by 365). But if Sam pays off his $300 debt at the end of the 30-day month when his statement is due, then he’ll have been charged $6.12 in interest.

All in, including an ATM fee, the cash advance for one month would cost Sam $24.12.

However, different banks have various ways of calculating interest, so the math will vary per specific credit card terms and fees.

It’s certainly not cheap to take out a cash advance, but keep in mind Sam was paying $45 for just two weeks with a payday loan.

In the case of a pinch, a cash advance is almost always a much better option than a payday or title loan.

Setting Yourself Up to Avoid Predatory Lending

Emergencies will arise, no matter who you are or how much money you make. Everyone can take pre-emptive steps to minimize the cost of the unexpected.

— Start building an emergency fund. A minimum of $1,000 helps ward off payday lenders, but six months of living expenses is ideal.

— Establish a personal line of credit with a local credit union. If building an emergency savings fund feels unattainable, having a personal line of credit with a reasonable APR at a local credit union can help you in a pinch. Even if you have a sizable emergency fund, it’s never a bad idea to have a personal line of credit for big emergencies.

— Build your credit score. A credit card can be a useful financial tool provided you don’t amass credit card debt by making frivolous purchases. If a low credit score currently makes getting a credit card unattainable, consider getting a secured card to begin rehabilitating your credit score and report.

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Should You Ever Use a Credit Card Cash Advance? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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