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Beware the Hidden Costs

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The number one rule of casino gambling is:

NEVER BET MORE THAN YOU CAN AFFORD TO LOSE!

The casinos have a house edge on all of the games except for certain video poker games, card counting in blackjack and live poker. We refer to casino games as having a negative expectation. This means that over the long run the mathematics of the game will grind away at your bankroll. The built in house advantage is how the casinos make money. Certain games have a lower house edge than others. Video Poker, Blackjack and the passline bet in Craps have a low house edge. Roulette and slots have a higher house advantage. It is the price we pay to play.

Proper money management tells us to budget a given amount to gamble with and stick to that amount, win lose or draw. This brings us to rule number two:

NEVER GAMBLE WITH BORROWED MONEY!!

Unfortunately that is exactly what you are doing if you run out of money and decide to take a cash advance on your credit card at the casino. There are also hidden charges you may over look if you decide to do this. I recently visited an East Coast casino and inquired about the finer points of taking a cash advance on a credit card. The casino charges you a certain amount just for issuing you a check from your credit card for the cash advance depending on how much money you want. To get a $500 cash advance the charge was $21.99. That is 4.4 % paid to the casino up front. Most credit card companies charge you 3% for a cash advance, which will come to $15.66 (3% of $521.99.

You are already down $37.65 or 7.5% before you even sit down to play. This is like sitting down at a five-dollar blackjack table and losing eight hands in a row or getting nothing back after putting three and a half roll of quarters through a slot machine. If this happened, most of us would head for the door real fast, but you are just beginning.

The following month your credit card bill arrives. Your balance is $537.65. You also find out that on top of the three percent you had to pay to borrow the money, the interest rate for a cash advance is 5% higher than the normal 15% you pay for purchases. Your new rate is 20 percent. Out of the goodness of their heart your credit card company will allow you to make payments if you decide not to pay the balance in full. In fact all you have to do is a make minimum payment for the month. This is where people get into financial trouble. Most people do not realize the consequences of making minimum payments. It will take a longer time to pay off the debt than you may have imagined. Below is a chart showing what it will take to repay that $537 at 20 % interest.

Credit card debt is the financial ruin of many people these days. It is too easy to get caught up in the “Buy now Pay” later mentality. The chart below will hopefully put things in perspective. Every one of us should hesitate the next time we reach for the “Plastic” to make a purchase.

I know that you need to take a credit card with you when you travel to obtain hotel and car reservations but they should not be used for frivolous cash advances. Cash advances should be used for “Dire Emergencies” only! I don’t think a few more hands of blackjack or a few more pulls on the slot machine handle falls into this category.

Credit Card Repayment

Monthly Payments Time # of payments Total Amount Repaid
$49.74 1 year 12 $596.88
$27.33 2 year 24 $655.92
$19.96 3 years 36 $718.56
$16.34 4 years 48 $784.32
$14.23 5 years 60 $853.80
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