Cash
Advance Credit Cards: You Should Know About These Costs
While cash advance credit cards
allow you to use part of your credit line to withdraw cash, there
are a number of fees and fine print issues that must be considered
before proceeding with a cash advance. Getting a cash advance
from your credit card is easier than ever. However, one must be
aware of the expenses associated with taking a cash advance before
inserting their credit card into an ATM. While there are a
limited amounted of credit cards that offer 0% cash advances for 1
year, most charge much higher interest rates on cash advances than
they do on regular purchases.
First off, there is a 99% chance
of being charged a cash advance fee. Of the over 70 credit cards
covered on Credit Card Depot, I could not find a single card that
charged less than a 2.9% cash advance fee. Some cards even impose
a $10 minimum fee. That means the cash advance fee can be 5-10%
if you are only taking $100 or $200. Taking out less than $300,
therefore, can be expensive.
Now, unless you take advantage of
a 0% interest cash advance offer, you will also be charged a
higher interest rate on the money you take out. For example, a
very popular credit card with a variable 10.99% interest rate on
purchases charges 23.49% on cash advances. This is not the
exception, but the rule. Regardless of your credit, you will
likely be charged 23% or higher on your cash advance balance.
There’s another sticky issue
here. When you repay your credit card, your dollars go first to
the balance that is being charged the lowest interest rate. For
example, let’s say you have a $2000 balance from purchases at
10.99% and a $1000 balance from cash advances at 23.49%. Until
you have paid off the $2000 from purchases, you will continue to
pay the higher interest rate on your cash advance. This is an
unfortunate trap many cash advance users fall into.
Now, there are ways to limit the
expense of taking a cash advance from your credit card. First,
you can find offers that will give you a 0% interest rate for 1
year. At the end of that year, you can pay the cash advance
balance in full or, if your credit is good enough, transfer that
balance to a 0% balance transfer credit card. However, if you do
not repay the cash advance, you will get hit with an interest rate
in the mid to high 20% range. Also, you may be charged a balance
transfer fee.
If you have a balance on your
current credit card, it is probably better to get a new credit
card for your cash advance to avoid the messy interest rate
situation having purchases and cash advances on the same card
creates. Also, if you cannot repay the cash advance in a short
period of time, you could transfer the balance to your current
credit card and pay a much lower interest rate on your cash
advance.
Taking a cash advance from your
credit card does cost money. However, the wise use of a cash
advance can limit the astronomical expense taking a cash advance
often entails. By taking interest rates, cash advance fees, and
the fact that paying off a cash advance on a credit card with a
balance is not that easy into consideration, one can effectively
use a cash advance credit card without falling prey to the traps
in your credit card’s fine print.
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