When you need money unexpectedly, it may seem like good solutions are few and far between.
Sure, you can drive down the street and probably find the telltale bright advertisement for a payday lender, but a loan from a payday office could only set you back further into debt if you have to roll over the loan.
Payday loans can also crush borrowers under predatory lending rates that can be as high as 500% depending on the state you live in.
Because of astronomical interest rates on payday loans, people in need of quick cash may turn to a cash advance or balance transfer check. While both of these options are less risky than going to a payday lender, they come with their own high fees and high APRs.
Here is what you need to know about balance transfer checks and cash advances as well as some helpful alternatives on the market today.
Balance Transfer Checks
A balance transfer check is most commonly used as a tool to pay off high interest credit card debt or high interest loans by transferring the balance to a lower interest rate on another account.
The issuer of the new account you are opening will typically issue you a blank check that will cover any amount up to your credit limit. The best practice when using a balance transfer check is to use it to pay off your old balance that is subject to a high interest rate.
You can also deposit the check into your checking account if you need fast cash, but this is not recommended. It will increase your debt and you won’t get the intended benefit of paying off an existing balance that is subject to a high APR.
Although similar in some ways, balance transfer checks differ from balance transfer credit cards. Rather than receiving a large sum upfront with a check, you transfer an existing debt to a new credit card and make regular payments until the balance is cleared.
A cash advance is money that you can withdraw directly from your line of available credit. Money can be withdrawn using your credit card from an ATM or from a bank that can process cash advances. While it varies depending on what credit card you own, you typically can’t withdraw your total line of credit and issuers will limit your cash advance to a few hundred dollars.
Cash advances are typically considered to be an unwise financial decision because they are subject to extremely high fees and interest rates. In most cases, card issuers will charge a flat fee for the advance or a percentage of the amount withdrawn. In addition to these charges, individuals who choose to take a cash advance are also subject to ATM fees and high interest rates.
Interest rates applied to cash advances vary depending on the card issuer but are almost always higher than the APR applied to your balance. There is typically no grace period for interest charged on cash advances, so even if you need money quickly a cash advance may not be your best option because you will almost immediately owe more than you borrowed.
Alternatives to a balance transfer check or cash advance
Getting cash quickly is now possible without ever having to leave your home. Apps such as Earnin, DailyPay, and Flexwage allow you to earn money from your salary or hourly wage as soon as you work.
The Earnin app takes information about your employment and wage and connects directly to your bank account. As you work Earnin keeps track of your hours and allows you to “cash out” your pay at the end of the workday.
DailyPay and Flexwage both offer a similar service of paying your wage in advance, but Earnin is unique because it doesn’t charge a fee to use the app upfront. When you get paid by your employer, Earnin or similar apps deduct the amount of money you’ve already received.
It should be noted that while the Earnin app does not charge you to use their platform, they do ask for a “tip” — typically 10 percent of your transfer. Critics of the app say that this use of the term tip is just clever semantics to avoid being called a payday lender. The tip is currently not mandatory on the app, but a failure to pay a tip will result in more limited access to features within the app.
Apps such as Earnin, DailyPay, and Flexwage give you quick access to money you have already earned so that unexpected bills or purchases don’t pull you into a cycle of debt and high interest repayment.