If you have a credit card, there’s a good chance you also have access to cash advances as well. Cash advances allow cardholders to withdraw cold, hard cash out of ATMs, just as they would with a check card or ATM card. That’s why you’re given a pin number when you open a new credit card.
The major difference, however, is that cash advances are deducted from your credit line, not your bank account, and carry costly fees and extremely high APR.
Cash advances typically don’t come with any grace period either, so interest begins accruing the minute you withdraw the cash. In fact, cash advances are probably one of the most costly credit options available. In other words, you probably shouldn’t use them, ever!
Credit Card Cash Advances Are Extremely Costly
Most credit card cash advances come with APR at or above 20%, along with a cash advance fee, which is typically 3% or more for each cash advance amount, with a minimum of $5-10 and no maximum.
So not only do you get nailed with an instant sky-high APR, you also get hit for each cash advance you take out. Not to mention the ATM fee if you don’t use an ATM from your card issuer’s network. Now do you see how bad this idea is?
Also note that if you carry additional balances on the credit card, lower APRs will be paid off first if you only make the minimum payment, so you may be stuck paying 20% APR or higher on those cash advances until all other debt is paid off in full.
The result can be a rather expensive, and that’s why it’s strongly discouraged that you use credit card cash advances. Period.
Cash Advances Should Be Reserved for Emergency Use Only (If Even That)
Cash advances should be reserved for emergency use only. And even then, you have to question whether they’re your best option.
When you have no other choice but to withdraw cash for the purpose of paying a loan, a bill, or any other cost that demands cash only, cash advances may make sense. But if you use cash advances frivolously, you’re simply throwing away your money to fees and finance charges.
Also note that some credit card issuers consider the purchase of gift cards a cash advance, and will charge you accordingly. Citi seems to do this, so be careful when “buying money” with your credit card, as it could result in unintended consequences. Research your specific credit card online before purchasing a gift card to see if you should be concerned.
If you receive convenience checks in the mail from credit card issuers, they may be treated as cash advances as well, although most tend to be treated like balance transfers that come with introductory 0% APR, making them a much better option than a cash advance.
At the end of the day, make sure you read the fine print to ensure you know the terms and exactly what you’ll be charged before taking up any offer.
Better alternative: Try a credit card balance transfer instead, many of which offer 0% APR and the ability to deposit cash into your checking account. There will probably be a balance transfer fee, but you won’t be subject to paying interest for a good year or so in most cases.
If you’re lucky, you may even be able to get your hands on a no fee balance transfer credit card!