Thinking of a Credit Card Cash Advance? Think Again.

A credit cash advance allows you to withdraw cash from your credit card account. Unlike a debit card withdrawal that allows you to withdraw funds from your own account, a credit card cash advance will have a transaction fee and higher annual percentage rate associated with it. Basically, you are using your credit card to “buy” cash and will have to pay it back. Most credit card companies have a limit on how much cash you can take out, which is usually a few hundred dollars at most. So, why would you need to get a credit card cash advance? If you only carry credit cards to make everyday purchases, you may find yourself in a bind when you can only use cash at a merchant. For example, buying food from a street vendor, buying produce at a farmers market, or paying for parking in a public lot. In these situations, it may be tempting to get a cash advance, but you should only do this when you have an EXTREME emergency.

It’s easy to get yourself into a lot of debt with cash advances as getting cash through your credit card can be very expensive.

Cash Advance Fees

There will be a fee associated with the cash advance that is imposed by your card issuer. It could either be a flat fee or a percentage of the amount of the cash advance. For example, it’s possible that the terms of your credit card will state you will be charged $5 or 5%, whichever is greater. So if these are the terms for a $200 cash advance, you would be charged a 5% fee, which would equate to $10, instead of the $5 flat rate.

ATM or bank fees

Not only will you be charged a cash advance fee, you will also be charged an ATM or bank fee. The financial institution that handles the transaction will determine this fee. You might also be charged an ATM fee by the ATM operator AND your credit card issuer!

Interest

Cash advances have much higher interest rates compared to credit cards. In addition to a higher interest rate, the interest on cash advances usually starts accruing immediately. In other words, credit card balances have a grace period before interest begins to accrue, but with a cash advance, you will not have a full billing cycle to pay in full in order to avoid interest charges. Therefore, it is in your best “interest” to pay this off as soon as possible - see what I did there? :)

Payment allocation rules

According to thebalance.com, federal law requires credit card issuers to apply the minimum payment to the balances that have the highest interest rate, but it is at their discretion how they want to apply any payments above the minimum. Usually, these additional payments are applied to the balance with the lowest interest rate, so for this reason, it can take longer to pay off your cash advance balance.

Cash advances should only be for extreme emergencies, but if you do find yourself in a crisis for cash, there are other alternatives that can help you.

Consider these options that could help you save money from interest charges:

Take out a personal loan

If you have good credit, consider a personal loan as the interest rate and terms of the loan will be better than a cash advance.

Raise your own cash

Consider hosting a yard sale, or selling items like old furniture online. If there is anything you don’t need anymore and want to get rid of, you can use an app like OfferUp to list and sell locally.

Overdraw your checking account

Overdrawing your checking account with your debit card can also be an option. There will be a fee associated with doing this, but you won’t be hit with any interest fees.

Borrow money from friends or family

I know it’s tough to admit when you need help, but if you absolutely need to, consider asking a relative or a close friend to borrow some cash. You can even draft up an agreement so that both sides know what to expect for repayment. You know those folks that say “If you need anything, I am here for you”? Well, it’s time to put them to the test! A credit card cash advance can seem like an easy and quick option when you need cash, but it can end up costing you a lot of money in interest and possibly even more credit card debt. There are definitely other alternatives to get cash that can avoid the interest rates associated with credit card cash advances! You can learn more by watching this video from the Keeping it Real with Credit YouTube channel: