Cash Advance vs. Balance Transfer

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Reader Vic writes in with this very important question:

I was reading your article titled “Making money with 0 % Balance Transfers” and am curious how you were able to get a “cash advance” without paying a higher interest. If my understanding works correctly, you essentially pay yourself (or withdraw) your max credit limit and invest it in a CD.

Unfortunately, almost EVERY credit card has a “cash advance” interst rate which is quite high? Is this no longer a viable option.

Vic, the difference is whether you request a balance transfer or a cash advance. The short version is that you need to request a balance transfer, not a cash advance, and you will get the promotional rate and not the cash advance rate. Nowadays, with the likes of credit card companies like Citi that will send you a balance transfer check in your name (here’s a walkthrough on how to request a balance transfer from Citi), the lines between the two are blurring in terms of what they look like.

Cash advances used to be the only way that you could get a check from a credit card. Remember when cards would send you those “convenience checks” every month to help you pay off your bills or whatever? Those “convenience checks” were cash advances and they came with high fees and high interest rates. They were like that because the only people using those checks were those that didn’t understand them or were desperate (and the cards knew it!), so the cards were looking to capitalize. Cash advances were also how you could get cash from ATMs using your credit cards, so you were paying for the instant access to capital. Nowadays, there’s a far superior option for those with time: balance transfers.

Balance transfers offers are designed to help you move a credit limit from one card to another, preferably from another credit card company to the one offering you a special promotion. They offer this because they have done the math and learned that enough people don’t pay off the limit after the promotional period and that’s some serious interest for them to earn. The competition heated up, cards were snatching up limits from each other, and then some cards decided to up to ante and start writing checks to people. In reality, writing a check to someone is no different then paying a balance off a card – the person cashing the check is still assuming more debt. However, this opened up the door for consumers to get cash from a credit card without having it be characterized as a cash advance.

The key is to request a balance transfer, not a cash advance. When it comes to making money off 0% balance transfers (or balance transfer arbitrage), you have to do a balance transfer because there is no such thing as a promotion cash advance offer. Unfortunately, if you request a cash advance, you can’t re-categorize it as a balance transfer. You’ll have to pay it back and request a balance transfer all over again.

{ 13 comments, please add your thoughts now! }

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13 Responses to “Cash Advance vs. Balance Transfer”

  1. Vic says:

    Thank you so much for responding to my e-mail! You have just earned another loyal reader! Please continue to share your valuable knowledge as it is much appreciated.

    On a side note, where did you learn all this stuff? Any books to recommend.

  2. ChristianPF says:

    As you are probably aware, it is become more difficult to make money with the method – so many of the credit cards that used to do bal transfers w/o the fees are now charging 3% for balance transfers. It has really caused me to cut back playing the 0% game.

  3. Hardik Patel says:

    I searched for 0% balance transfer credit card with no balance transfer fee and not annual fee
    most of the card I came across are charging 3% balance transfer fee
    would you please let me know where can I look for a card with no balance transfer APR and no fee

  4. jim says:

    Hardik: Look carefully because several of them will say “Balance transfer fee waived with this offer.”

  5. 91030Mom says:

    It is getting harder, but right now I have about 40k in the bank earning interest I got for 0% with NO xfer fees whatsoever. They are still out there, B_of_A has some as does C.i.t.i.

  6. MoneyNing says:

    I still think this is pretty risky since it involves something that can serious mess up your credit score.

  7. jim says:

    Fear shouldn’t prevent you from doing something, it just means you need to learn more about it.

  8. Charles (The Broker) says:

    This is a great way to make a little extra. You must remember that its like playing with a loaded gun. It is getting harder to find these 0% no fee and almost impossiable to find a cash advance 0%. Be careful. Good luck.

  9. bek harper says:

    Thank you so much for this article! I just took advantage of a citi balance transfer offer for 2.99% till Sept 2011 and when I got the confirmation letter it seemed to blur the lines between the terms balance transfer and cash advance and I went through some anxious moments fearing that the check I requested over the phone would end up being a cash advance, not a promotional balance transfer. I will call citi to make sure, but now I approach them well armed with information. I did this over the phone and am sure I requested the 2.99% versus the 0% for a shorter time, so I’m sure it’s OK and is a balance trsnsfer. Sadly, who trusts banks not to try to trick you these days?

  10. bek harper says:

    To follow up on my last comment, I did indeed receive a balance transfer with the 2.99% rate, so no problem there. Now it just occurred to me that when the time comes next September to pay off the promo balance and avoid a higher rate, will Citi apply my payment to this promo, or can they choose to apply my payment to the balance of an earlier promo (also 2.99%) that had no expiration date, and which I would like to keep out and continue paying monthly. Any ideas? The earlier balance transfer promo will have about an $8,000 balance, while the newer one will be about $9,000.

    • Chris says:

      Credit rules now require payments to go toward the higher interest rate. If you pay it before your rate goes up you MAY have it go toward the older balance, but if you wait until the rate goes up it will go toward the higher rate as I understand it.

  11. mary says:

    my visa just changed my balance transfer to a cash advance from 2008 ive called and no corection is being done ,.

  12. mary says:

    so if i dont pay the transfer in the promo period it changes to cash? i have exellent credit . never late since 2005,they lowered my limit , which i dont understand but it messed my credit report up , its good again . thanx if some one knows what action i should take please help.

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