This is the final part of our series on the hidden cost of credit card cash advances. When real estate professionals find themselves in a cash flow shortfall due to a delayed or canceled home closing, credit card cash advances are one of the most popular options for temporary financing needed to cover business necessities like marketing costs, office supplies or a car payment.
While in the first installment we related a list of hidden fees that often penalize unsuspecting real estate professionals, in this post we address the financial trickery card companies are able to play right under our very noses.
Not that taking out a loan or obtaining cash advances are necessarily bad things. Access to and use of financing to make investments in your business can be the difference between getting to the next level in real estate or taking an early exit.
What really matters is how financing is used and avoiding getting into a never-ending cycle of debt. Which brings us to a discussion of interest rate versus interest payments.
Interest Rate versus Interest Payments: Magician’s Trick
This is where many credit card companies trap consumers and successful real estate agents alike. We’re talking about a sleight-of-hand tactic akin to a magic trick where the audience focuses on something directly in front of their eyes while the deception happens in the background.
In the case of credit card advances and debt in general, an interest rate may appear to be reasonable at 19.9% but when we factor in the amount of time it often takes to pay back the whole amount, the actual interest payments end up growing and growing over time. Plus the cash advance gets commingled with your regular credit card charges such that if you make the minimum payment due it could actually take years to pay it back.
To better illustrate, let’s look at two examples of an advance of $3,000 with an interest rate of 20%. Here are two very different interest payment scenarios:
| Advance Amount | Interest Rate | Monthly Repayment Amount | Expected Payoff Time | Total Interest Paid |
| $3,000 | 20% | $300 | 12 months | $309 |
| $3,000 | 20% | $100 | 42 months | $1,193 |
Now you may say to yourself, “I’m not going to get caught paying the minimum amount…as soon as I get my next commission I’ll pay 100% of the advance off, clearing my debt immediately!”
If it were always so easy. A review of credit card debt statistics from Bankrate.com and CreditCard.com tells a much different story:
- Average household with credit card debt owes $15,355
- Household debt has grown 15% faster than household income since 2003
- The average household pays $6,658 in interest payments
- Consumers either vastly underestimate or underreport their credit card debt
Translation: the average family with credit card debt is far more likely to keep that debt on the books far longer than originally planned, resulting in much higher interest payments over time. In other words, if a real estate professional takes a $3,000 cash advance on a credit card it is more likely that the true amount ultimately paid back will climb as high as $4,000 or more — a $1,000 interest cost!
Now, not all real estate professionals take cash advances on their credit cards; they possibly have other sources lined up for accessing funds which don’t involve taking on more debt (for example, eCommission commission advances!).
For many real estate professionals, however, having access to flexible options for managing cash flow will become a necessity. It’s the nature of working as a 100% commission-based entrepreneur who needs to keep investing in his or her business.
Just remember there is always a cost to accessing capital — it’s simply a question of learning the true costs (especially interest payments) over the life of the debt so you can make the most informed, smart decision possible.
If you ever have any questions about eCommission’s commission advances, we are here to help. Because we are not making loans, using eCommission does not create new deb so it can be a useful alternative to credit cards. Agents simply pay a fee to access a portion of their commission before an estimated closing date. The cost is stated upfront, not in the fine print, and repayment of the advance happens automatically when your sale closes. Best of all, the cost can be a tax deductible business expense. eCommission is also recommended by some of the biggest names in real estate. Curious? Call us today at 1-877-882-4368 or email us at: agent@www.ecommission.com
