Credit Card Cash Advances

Posted by nick_niesen on October 29th, 2010

Most credit cards give you the option of withdrawing a cash advance from your line of credit on your card. You just go to any ATM, and use your credit card to withdraw cash as if it were a debit card. This might seem like an attractive option?sometimes cash is just handier than using plastic. In theory, it seems like it should be the same as using your credit card to purchase goods for an equivalent amount. Unfortunately, people who use their cards to get cash advances while under this impression are in for a big shock.

As a rule, using your credit card to obtain a cash advance is a bad idea. As stated before, it seems like it should be the same as using your credit card to make purchases?but what people frequently don?t realize is that the rules for using your credit card to make purchases and the rules regarding cash advances are completely different, and not in your favor. You should be fully informed on the different procedures and regulations regarding cash advances before you even consider getting one.

First, and very importantly, the interest rates for a cash advance on your line of credit are different from the interest rates on the balance of your credit card. Almost always, the interest rate on your cash advance will be much higher than the interest rate on your card. They vary slightly from company to company, but usually the interest rate on any cash advance will be between twenty and twenty-five percent. In addition, most credit cards charge a flat fee for any cash advances you take out, regardless of the amount that you take, every time you take them. This means that whether you?re taking out twenty dollars or a hundred, your credit card company could be charging you ten dollars just for the privilege. On top of that, the institution that owns the ATM that you use to take out your cash advance will also charge a fee.

As if that isn?t bad enough, most credit card companies don?t allow a grace period before interest kicks in on cash advances. Whereas you would usually have until the end of the month to pay off your balance before interest starts accruing, when you take out a cash advance it starts the second the ATM spits your money out. To make matters even worse, many credit card companies will require you to pay off any non-cash-advance balance that you might be carrying on your card before they will allow you to apply your payments to the cash advance. This means that they force you to pay down the amount with the lower interest rate, while the cash advance balance stays untouched, with the amount owed increasing and increasing under a high interest rate.

What?s more, people frequently use this line of credit without even knowing it. Often you credit card company will send you ?credit card checks? in the mail, offering them as an easy way to get your hands on big lump sum. What people usually don?t know when they use these checks is that your credit card company will normally treat these ?checks? as a cash advance, with all of the accompanying disadvantages.

Clearly, any benefits of using a cash advance on your credit card are far outweighed by what it can cost you. Unfortunately, people are usually using cash advances when they are at their most financially insecure, which is also when they will be least able to cope with the high interest rates and fees. Don?t take out cash advances and get loaded with debt you can?t afford.

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