Cash advances provide quick access to funds during urgent situations by letting you borrow a portion of your credit limit as cash. In the Philippines, obtaining a credit card cash advance is generally straightforward—simply withdraw cash from a credit card. With your Landers Cashback Everywhere Credit Card, for example, you can get a cash advance by withdrawing at any Visa-supported ATM.
While this process offers convenience, cash advances often carry a reputation for being a quick fix that tend to have higher interest rates and fees than regular credit card transactions. However, when used strategically, they can serve as an effective financial tool for managing various short-term needs. When you understand how to use cash advances effectively, it can make a significant difference in maintaining your financial stability and in your capacity to reach your financial goals.
In this article, we’ll explore how the strategic use of cash advances can be beneficial for you.
1. A Cash Advance Can Help Cover Emergency Expenses
One of the most common reasons people turn to cash advances is to manage urgent, unexpected expenses. Situations like a medical emergency, a sudden car damage, or an urgent home maintenance need can quickly overwhelm a household budget. In these scenarios, accessing a cash advance is a fast and easy way to obtain the necessary funds without needing to dip into one’s savings or without having to liquidate long-term investments.
If a family member were to require immediate medical treatment, a cash advance can help cover the costs right away, allowing access to essential care without delay. This can be a lifeline, especially when time is of the essence and there are no other quick financial solutions available.
2. Use Cash Advances to Manage Short-Term Cash Flow Issues
Cash advances can also provide an effective solution for handling short-term cash flow challenges, especially for individuals who may experience delays in receiving payments. This is particularly relevant for freelancers, commission-based workers, and small business owners, where income can be irregular.
For example, a freelance graphic designer might be waiting for a delayed payment from a client but still needs to cover monthly expenses like rent, utility bills, and groceries. In such cases, taking a cash advance can help ensure that these bills are paid for on time. This strategic use of a cash advance can smooth out cash flow gaps without the need to resort to more drastic measures like borrowing from informal lenders or sacrificing essentials.
3. Cash Advances Enable Entrepreneurs to Seize Time-Limited Business Opportunities
Entrepreneurs and small business owners in the Philippines can use cash advances to take advantage of time-sensitive opportunities that can boost their businesses. For instance, a small grocery store owner might find a rare opportunity to purchase supplies in bulk at a significant discount, which could result in better profit margins over the coming months. In such a situation, using a cash advance to make the purchase could translate into increased profits that far outweigh the cost of the advance itself.
Similarly, small business owners might use a cash advance to invest in new services or products that can help them expand their customer base. Indeed, cash advances empower entrepreneurs to invest in opportunities that may not be possible with their existing cash flow situation—opportunities that can potentially lead to greater profitability and business expansion.
4. Cash Advances Can Help Provide Additional Funds for Essential Travel or Relocation Costs
Cash advances can also be helpful when dealing with travel or relocation expenses, whether for personal reasons or new job opportunities. For many Filipinos, a sudden job offer or family matter may require immediate travel to another city or even overseas, a situation where saving up funds over several months might not be feasible. A cash advance can help cover airfare, temporary lodging, or initial settling-in expenses, enabling individuals to take advantage of the opportunity without unnecessary delays.
5. Cash Advances Can Help Avoid Expensive Borrowing Alternatives
When compared to other short-term borrowing options, like informal lending (locally known as ‘5-6’ loans), cash advances can be a more manageable option. In the Philippines, ‘5-6’ loans refer to informal lending arrangements where borrowers repay PHP 6 for every PHP 5 borrowed, effectively translating to a 20% interest rate over a short period, often within a month or even less. These loans don’t require formal documentation or credit checks but come with extremely high interest rates and pressure for quick repayment, making them a financially risky choice.
On the other hand, cash advances are typically more regulated and come with a clearer repayment structure through banks or formal financial institutions. For example, while a ‘5-6’ loan might have daily compounding interest, a cash advance from a bank has fixed interest and transparent terms, which can make it easier to budget the repayment for.
Important Considerations When Using Cash Advances
Despite the potential benefits of cash advances, it is important to approach them with caution. The higher interest rates and additional fees can accumulate quickly if the borrowed amount is not repaid promptly. As such, be sure to have a repayment plan in place before taking out a cash advance. Additionally, it’s advisable to use cash advances for one-time needs rather than as a regular solution for financial challenges, as relying on them too often can lead to a cycle of debt.
To help you manage your credit card cash advances effectively, consider assigning a spending limit for such a transaction. For your Landers Cashback Everywhere Credit Card, for example, you can do this through the Maya app with the following steps:
When used thoughtfully, cash advances can be a strategic tool that supports financial stability in times of need or opportunity. For Filipinos, understanding how to leverage this option while being mindful of the costs is key to making the most of this financial resource. It is essential to view cash advances not merely as a fallback but as an integral part of a broader financial strategy, ensuring that they align with one’s overall financial goals.