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Have you ever been tempted to use a cash advance on your credit card when you’re short on cash? A cash advance is not treated like any other charge and carries with it fees, a higher interest rate and no grace period. Here’s a look at the dangers of the credit card cash advance and better alternatives out there.
A cash advance on your card is when you withdraw cash from an ATM with your credit card.
A cash advance is treated much differently than a purchase by your card issuer and the limit on the amount you withdraw will be lower than the credit limit on your card.
There are MAJOR Dangers Associated With Cash Advances
If you’re short on cash, whether you’re shopping or paying a bill, what’s the harm of withdrawing $80 at the ATM with your credit card? A cash advance can actually hurt you in many ways:
- Cash advance fee – Your credit card issuer will charge you a fee, usually around 3%, of the amount you withdraw.
- Interest rate – A cash advance has a higher interest rate than regular purchases. Fr example, the interest rate for purchases with the popular AmEx Blue Cash Everyday varies from 17.24% to 22.24%. The APR for cash advances, on the other hand, is 25.24%.
- No grace period – Most credit cards have a 25 to 30-day grace period during which you can pay off the balance from purchases with no interest charged. With cash advances, there is absolutely no grace period; interest will be charged from the first day.
- ATM fee – You’ll also be charged a fee by the bank or ATM owner of around $4 when you withdraw your cash advance.
- If you pay the minimum monthly amount, the will be applied first to the balance with the lowest interest rate. Thanks to legislation passed in 2010, anything you pay past the minimum amount due will now be applied to the highest interest rate balance, which is the cash advance. Still, if you carry a balance and pay the minimum due each month, a single cash advance can hurt you for a long time.
Is a Cash Advance Ever a Good Idea?
There are some emergency situations in which you need a cash advance because you have no other option. It’s still important to use a cash advance carefully and only when absolutely necessary. Start by knowing the cash advance limit on your credit card, which is different from your credit limit. If you go over this limit, you’ll face higher rates and over-the-limit charges.
Take out only what you need so you can repay the advance quickly and don’t make any more purchases with your card until you’ve repaid the cash advance.
VERY IMPORTANT: Always use a cash advance on a credit card with no balance so there won’t be multiple balance types. This makes it even harder to pay off your advance.
There are Much Better Alternatives
Consider all alternatives before you use a cash advance on your credit card. This includes personal loans from family, small loans from your credit union, extensions on your bills and local emergency programs. In some cases, it’s also possible to get a payday advance by speaking with someone in the human resource department of your job.
A better way to get cash with your credit card: Make a small purchase at a grocery store that offers cash back. Pay with your credit card and ask for cash back on your purchase for the amount you need. This cash will be added to your bill and the entire transaction will be run as a normal purchase on your credit card, avoiding all cash advance fees and interest rates.
Furthermore, Discover cardholders can get cash back at hundreds of stores including Walmart, Meijer, Genuardi’s, Giant, and Safeway through the cash at checkout program.