Financial emergencies can happen when we least expect them. At such a time, one of the easiest ways to get quick cash is by liquidating credit cards. But is this a viable solution, and what does it involve?
We’re breaking down how to liquidate credit cards, as well as the alternatives available when you need cash.
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What does it mean to liquidate a credit card?
Liquidating credit cards essentially means transforming your available credit into cash. You may choose to do this if you need cash quickly and don’t have the time to apply for a loan.
In some ways, liquidating credit cards can be thought of as a type of cash advance – since you’re essentially converting your available credit into cash.
Keep in mind that credit cards are expensive financial products and liquidating credit cards often means you may end up paying additional costs. You may be charged for withdrawing cash from your credit card. You will also need to pay interest on the cash you’ve withdrawn if you can’t pay it back in full by the end of the billing cycle.
Liquidating credit cards can be expensive, so it’s important to consider other alternatives first before making this move.
Reasons to turn credit into cash
If you do find yourself in a bind, you might consider turning credit into cash for various urgent financial needs. This could include covering unexpected medical expenses, paying for emergency home or car repairs, or bridging a gap in income during unemployment.
Credit card liquidation can help resolve immediate cash flow problems. However, it’s not exactly a viable long-term solution. Over the long haul, you’ll want to focus on building up emergency savings or finding ways to live within your budget.
How to convert credit cards into cash
Liquidating your credit card balances can be a quick solution if you have pressing financial issues to take care of. Here is a step-by-step guide on how to convert a credit card into cash.
Know your credit card’s terms and conditions
Credit cards have different terms depending on the issuer. Some credit card options, like those specifically designed to build credit, may not easily allow individuals to consolidate their balance. Before turning credit into cash, go through the terms and conditions of your credit cards to know what is and isn’t possible.
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Identify the cash advance limit and fees
The cash advance available on a credit card is typically 20%-30% of your credit limit. The fees are also higher than those for most normal purchases.
When you liquidate a credit card you could even be charged additional cash advance fees, ATM fees, or late payment fees if you don’t pay off the cash advance balance on time.
Know the risks of converting credit cards into cash
Liquidating your credit cards can come with interest rates that accrue quickly, leading to a significant amount of debt if you don’t pay off your balance on time.
So as much as this may seem like a viable option, it’s all too easy to get into a debt cycle if you don’t pay off your balance. Late payments can also hurt your credit score, making it difficult to qualify for affordable loans and credit in the future.
Devise a plan for repaying the credit card cash advance
Having a payment plan in place beforehand can help mitigate the risks associated with cash advances. Understand how much you can realistically afford to borrow and don’t borrow more than you can afford to pay.
Head to the ATM
The starting point for credit card liquidation is the ATM. You may have to select the option that reads “cash advance” or “withdraw” and select the amount to withdraw based on your limit. From there, collect your cash and make sure to only use it for what you really need.
Alternatives to liquidating credit cards into cash
Not everyone is comfortable with the high risks that come with credit card liquidation. If you don’t want to be bogged down by added fees or interest rates, it’s probably worthwhile to paying explore alternatives to liquidating credit cards.
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Personal loans
Personal loans can be offered by banks, credit unions, or online lenders and feature have fixed interest rates and repayment terms.
Bonus? They tend to have lower interest rates than you’d find by turning credit into cash with liquidation. However, the exact rates you qualify for will vary based on your credit score and income
The downside with personal loans is that you’ll need to apply and qualify, which may take a few days to process, unlike the immediate access of a cash advance. Still, some lenders offer faster funding than others.
”HELOC
A HELOC allows you to borrow against your home’s equity. Interest rates are typically lower than credit cards or personal loans since the loan will be secured by your property.
You can draw funds as needed up to a set limit, and you’ll typically only pay interest on what you borrow. However, if you default on payments, you risk losing your home. It’s also important to consider closing costs and the potential impact on your home’s equity.
Finding a trusted friend or family member willing to lend cash
If you need instant cash for emergency expenses, a family member or friend you trust could be of help. However, it’s recommended to approach this with caution. You don’t want to run the risk of souring your close relationships. If you do decide to borrow funds, you’ll need to come up with a plan for repayment and make sure to stick to it.
Sell unwanted items or offer services for cash
Online platforms like eBay, Facebook Marketplace, or Craigslist make it easier than ever to reach potential buyers. You might be surprised by the value of items you no longer need.
This option is great because doesn’t involve taking on debt or paying interest, but it does require time and effort to photograph, list, and manage sales. It’s also limited by the value and quantity of items you’re willing to part with.
Weighing the risks and rewards of liquidating credit cards
Liquidating your credit cards can provide a quick source of cash in times of need, but it comes with a risk. You need to weigh your options before taking on additional debt on credit cards. Remember, your financial future depends on the decisions you make now, so consider all your alternatives before converting your credit card balances to cash.
FAQ
Why should I consider liquidating my credit card?
Liquidating your credit card might be considered if you’re facing a financial emergency and have exhausted other options. However, it’s generally an expensive choice due to high fees and interest rates, so it should be a last resort.
Will liquidating my credit card hurt my credit score?
Liquidating your credit card can potentially hurt your credit score by increasing your credit utilization ratio and possibly leading to missed payments if you struggle to repay. The impact depends on your overall credit profile and how you manage the repayment.
Can I still use my credit card after I liquidate it?
If by “liquidating” you mean taking a cash advance, you can still use your card for purchases up to your available credit limit. However, if you’ve maxed out your card through liquidation, you won’t have available credit until you make payments to reduce the balance.
