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Cash Advance vs. Balance Transfer

Reader Vic writes in with this very important question:

I was reading your article titled “Making money with 0 % Balance Transfers [3]” 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 [4]), 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 [5]), 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.