Whatever the reason, a credit card cash advance may seem like a tempting option. A cash advance is a short-term loan on your card account. Maybe you're in a cafe that only pays money or your taxi driver doesn't accept plastic. It is a simple transaction that can have very costly consequences.
Most of the time, it's a terrible idea. A cash advance allows you to use your credit card to get a short-term cash loan at a bank or ATM. Unlike a cash withdrawal from a bank account, a cash advance should be returned just like anything else you deposit on your credit card. Think of it like using your credit card to buy cash instead of goods or services.
A cash advance may seem like an easy way to get cash quickly, but it can cost you a lot of money in interest and fees. Before you apply for a cash advance, familiarize yourself with the terms so that you are not surprised by an unpleasant surprise. And better yet, avoid a cash advance altogether. Cash advances can be an important source of funds in case of emergency.
While you don't want to plan to use cash advances regularly, you can use one if you're short on funds and can't charge an expense. However, always make sure you consider all your options with costs in mind. Often, payments above the minimum are applied to the lower interest rate balance, meaning it takes longer to settle a cash advance. Your credit card statement should show you the different interest rates for your purchases, cash advances, and balance transfers.
In other words, if you need more than a few hundred dollars to address an emergency, a cash advance may not be a reliable option. You can minimize the interest you pay on a cash advance by paying the balance as soon as possible, even if that means paying before your bill arrives in the mail. Cash advances have numerous terms and charges, as mentioned above, but you might be wondering how much all of this can cost. The only difference at the ATM is that you will select the cash advance option instead of choosing your savings or checking account.
Many responsible cardholders are surprised to learn that credit card companies don't allow a grace period for cash advances like they do for regular purchases. Depending on your credit profile and the type of loan you get, a personal loan might be less expensive than getting a cash advance on your credit card. In reality, credit card cash advances are loans and, as such, they are expensive and can easily generate credit card debt. If you can't pay more than the minimum, it may be better to save money and avoid getting a cash advance.
Instead of taking a cash advance at an ATM, consider overdrawing your checking account with your debit card. A cash advance on your credit card may seem like a quick way to get money, but there are fees and risks to consider. If you need cash in a hurry, there are ways to get money from a credit card without making a real cash advance, such as changing the way you pay your bills or getting creative with gift cards. Usually, your credit card provider does not extend merchant cash advances, but are offered in partnership with the payment processor for credit and debit card sales.
If a cash advance is your only solution to withdraw money quickly, make sure you know all the costs involved and develop a plan to pay it off. Reynolds recommends contacting your credit card company before writing a convenience check to ensure that the cash advance does not exceed your limit.