Guide to Borrowing a Cash Advance with Credit Cards Hong Kong
A credit card cash advance is not something that card owners in Hong Kong are accustomed to using. According to the statistics provided by the Hong Kong Monetary Authority, cash advances make-up 6% of the total credit card transactions in the last quarter of 2015. That is equivalent to HK$9.4 billion of the HK$156.9 billion transactions during the last part of 2015.
This is actually good news because relying on your credit card to get a cash advance is not the wisest financial move. Credit cards, in itself, is notorious for the high-interest rate. If you withdraw a credit card cash advance, the interest rate will even be higher than that. You can also expect that transaction fees will be charged depending on how much cash you got from your card.
If you find yourself in dire need of cash, you are probably faced with a transaction that does not accept credit cards payments.
While it is possible to be in a situation wherein a cash advance is necessary, you need to know how to use it smartly. Here are do’s and don’ts when you are forced to get a cash advance from your credit card.
When should you get a cash advance from your credit card?
Do get a credit card cash advance if you…
…understand the rates and fees associated with it.
It is very important for you to know the implications of getting a cash advance from your credit card. As mentioned, the interest rate of these cards is even higher than usual credit card transactions. Not only that, you have to deal with transaction fees.
Make sure you understand what you are getting into before you use the card. The information is usually available in the credit card statement that you get every month – or the contract when you applied for the card. You can also get in touch with your credit card issuer to ask about the details. Take for example a recent issue between HSBC and their clients.
According to an article from the South China Morning Post, HSBC was forced to refund the fees charged to their clients for getting cash overseas. Apparently, clients were unaware of changes in the HSBC system and it left them unable to get money while travelling. This forced them to get a cash advance from their credit cards. A misunderstanding between the bank and clients caused the latter to incur fees and charges. If you remain ignorant, you will be charged with high fees – and you would not know how to file a dispute. It is important that you understand your credit cards completely so you do not have to suffer unfair charges.
…know why you are borrowing.
You need a valid reason to get a cash advance from your credit card. Given the high-interest rate and the fees that you will face when you use this credit card feature, you need something as important as an emergency to justify its use. Anything less than an emergency can afford to wait until you are able to get cash from an ATM.
…will borrow only what is needed.
Another important rule when using a credit card cash advance is borrowing only what is needed. If you just need HK$200, do not get beyond that amount. The interest rate of these cash advances is charged on a daily basis. The bigger amount you withdraw, the higher the interest that your balance will incur.
…have a payment plan in place.
Because a cash advance from credit cards are charged a daily interest, it is important for you to pay it back immediately. If you really have to get a cash advance, make sure that you have a payment plan ready – and you stick to that plan. For instance, if you plan to pay it right after you get your next pay check, make sure you follow through. Any delay might cost you more in terms of the interest rate.
When is it a bad move to borrow cash from your credit card?
Don’t get a credit card cash advance if you…
…made it your first option.
Make sure you know the other options for you to get cash. For instance, some banks in Hong Kong offer quick cash loans. If the need can wait until you can apply for one, then skip getting a cash advance from your card. You can also opt to borrow from family or friends. Just make sure you pay it back immediately to avoid ruining relationships.
…think of it as an emergency fund.
Never rely on your credit card for emergency cash. That should be a separate saving goal for you. A cash reserve fund is a must because it will help you pay for unexpected expenses. Do not rely on your card because the costs are too high. You will be placed in a more difficult situation and using a credit card cash advance will only make your financial situation worse.
…plan to use it to pay other debts.
Why would you use a high-interest debt to pay for your other debts? Using debt to pay off another credit account is only acceptable if the former has a low-interest rate. Obviously, a cash advance from the card does not have this quality. It is not the best debt solution for your credit problems.
…will delay paying it back.
If you know that it will take time for you to pay back the cash advance – do not go through with it. As mentioned, the longer it takes for you to pay it back, the bigger the debt will be. The interest will continue to accrue on a daily basis – until you have paid it back in full.
Regardless of the emergency situation that you are in, getting a credit card cash advance is really not worth it. The best course of action is to boost your emergency fund so you have the extra money to spend when the unexpected comes. Make sure this money is wisely used so you will not be tempted to use it for unnecessary expenses.
She is a Singapore Management University 2nd year undergraduate specialising in Strategic Management. From Tampa, Florida, she possesses an International Baccalaureate diploma from C. Leon King High School, and previously held the position of Treasurer of the King High School Division of the French National Honour Society and the Science National Honour Society. Abigail is currently acting as President of the French Cultural Club for SMU International Connections, and as a Resident Advisor and Fire Warden for the SMU Residences at Prinsep.
Abigail is a Former Florida Science Olympiad Champion in chemical forensics and protein modelling, and former Health Occupation Student’s Association District Champion in clinical nursing.
In her free time, Abigail enjoys interacting and caring for animals. She has previously volunteered for the Humane Society of Tampa Bay as an Adoption Assistant.