An expensive way to borrow money
Avoid Cash Advances on Your Credit Card
by Bill Hardekopf
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Running short on cash? You may have been tempted to use your credit card at an ATM machine or perhaps try one of those convenience checks in your credit card statement. But before you resort to either of these alternatives, read the fine print. Credit card cash advances have surprisingly high interest rates and fees.
Cash advances are loans that are funded by the balance on your credit card. These advances can be for any amount up to your credit limit. You must have an ATM PIN to get cash at a teller machine or present your card at a bank to receive money.
Unless you are caught in an emergency without cash, you should always avoid getting a cash advance with your credit card. A number of credit cards charge nearly 25% interest for a cash advance and fees are 3%-5% of the advance. There is no grace period, so interest charges begin as soon as you receive the money. Cash advances are an extremely costly way to get cash.
Some of the most costly cards for cash advances are offered by the major card issuers. For example, the Discover More card charges 24.99% interest and a 5% fee (not less than $10). The Citi Forward card assesses 25.24% interest and a 5% cash advance fee (not less than $10). The Capital One Platinum Prestige card charges 24.9% interest and a 3% cash advance fee (not less than $10). Smaller banks and credit unions typically offer cards with more reasonable interest rates on cash advances.
Before Getting a Cash Advance
Ask yourself these questions before getting a cash advance on your credit card:
- How long will it take to pay off the cash advance loan? Calculate how much you will pay in interest and fees.
- What are your other payment options? You may be better off getting a personal loan or selling personal items.
- Why do you need the cash? If you are in a foreign country with no other option for cash, or stuck with a broken car and the mechanic won't accept your credit card, then a cash advance may be your only option. Is your current situation that critical to incur these steep financial penalties?
- Are you considering a cash advance because you are struggling to make ends meet? If your salary can't cover your debt and monthly bills, it may be time to get help from a credit counselor instead of adding more debt with higher interest rates. The National Foundation of Credit Counseling can help.
Are you heading for debt trouble? This simple checklist can help you find out and provide options for doing something about it.
Reviewed September 2017
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
Take the Next Step
- Before getting a cash advance, consider these 19 ways to raise quick cash.
- Get proactive about tackling your debt. Take these steps to get out of debt and begin the journey to financial freedom today!
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
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