Avoid Cash Advances on Your Credit Card

by | Mar 12, 2024 | Billsaver, Understanding Credit Cards

If you are running low on cash, it may be tempting to use your credit card at an ATM or try one of the convenience checks included with your credit card statement. Before you do either of these things, though, it is important to read your credit card’s terms and conditions, as credit card cash advances often come with high interest rates and fees.

Basically, cash advances are loans funded with your credit card balance. The advance can be for any amount up to your credit limit. They are tempting, because to access the funds, you simply need to present your card at a bank or use your card’s ATM PIN to get cash at the machine.

However, unless you are in dire circumstances and need the cash, you should avoid getting a cash advance with your credit card. Most cards charge nearly 25% interest for cash advances and fees can range from 3% to 5% of the advance amount. There is no grace period, and you will have to start paying interest as soon as the money is received. Thus, cash advances are an expensive way to get money.

Fees and interest charges on cash advances vary by credit card company. The Citi Simplicity card charges up to 23.24% interest and a 5% fee ($10 minimum) on cash advances. The Capital One VentureOne card also charges up to 23.24% interest on cash advances and a 3% fee (not less than $10). Credit unions and smaller banks generally offer credit cards with a more reasonable interest rate on cash advances.

Before getting a cash advance, ask yourself these questions:

  1. What are your other options? You may be better off selling personal items or getting a personal loan from a friend or family member.
  2. Why do you need the money? If you are in a foreign country and have no other access to money, or if you are stuck somewhere with a broken car and a mechanic who won’t take your card, you may be stuck with a cash advance. Consider whether your current situation is dire enough to necessitate the steep financial costs.
  3. Are you struggling to make ends meet? If you are considering a cash advance because your salary is not covering your debt and monthly bills, you may need to seek the assistance of a credit counselor instead of incurring more debt. Consider contacting the National Foundation of Credit Counseling.
  4. How long will it take you to pay off the loan? When calculating the total, make sure you consider fees and interest.