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