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Avoid Credit Card Cash Advances!
Posted By Jim On 10/26/2009 @ 12:03 pm In Credit | 32 Comments
Reader Jane emailed me last week to warn me about cash advances on credit cards. She recently stuck her credit card into an ATM, withdrew money, and was surprised to learn all the fees associated with a cash advance. She was in a bit of a pinch (she didn’t elaborate, nor did I ask) and needed cash but she left her ATM card at home, so she resorted to her credit card thinking a cash withdrawal from an ATM would be the same as a charge. Unfortunately she was wrong.
A credit card cash advance is when you take your credit card to an ATM and withdraw cash. There are other scenarios but that one is the most common one people run into. The cash advance is not considered a regular purchase and its treated differently on the card, more on that later. Finally, your cash advance limit will almost always be lower than your credit card’s credit limit.
Cash advances are bad for a variety of reasons. First, they’re not considered regular purchase charges on your credit card. The credit card will charge you a fee for the cash advance, something like of 3% of the withdrawn amount. They will also charge you a higher interest rate on the cash advance balance. On one of my cards, the purchase APR is 19.99% while the cash advance APR is 21.99%. Finally, there is no grace period on cash advance balances. You will be charged interest from the day you withdraw the money.
And to add insult to injury, the bank ATM you’re using will probably charge you their standard non-customer ATM fee, which can run several dollars. The credit card cash advance is the equivalent of the nuclear option, when all other options have failed.
If no one ever used a cash advance, they wouldn’t exist. So when is it OK to use a cash advance? When you need cash during an emergency and there are no other options. In Jane’s case, it didn’t seem like there were many options available because she didn’t have her debit card and her situation forced her to use cash. Sometimes you just have to pay the toll.
If she had more time, I would’ve recommended that she try to find a grocery store. Many, but not all, grocery stores offer cash back on purchases. You could go into the grocery store, buy something small, and then get some cash back on the purchase. The grocery store will add the cash back onto your grocery bill and the credit card will treat it as a normal purchase.
While it would be easy to simply say – “Never ever get a cash advance.” What’s best and what reality deals you doesn’t always agree, so you have to be pragmatic and adapt to the situation. If you have no choice, just recognize the penalties of using a cash advance and be sure to pay off the advance balance as quickly as possible.
(Photo: timpatterson )
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