They might be convenient but that doesn’t mean they’re worth it
Just because you can get a cash advance doesn’t mean you should.
With higher APRs, higher interest rates, and many fees you don’t know about, creditcards.com says consumers should avoid cash advances on credit cards, even if they seem enticing. You’ll end up paying much more than you took out in the first place.
The survey says that you’ll save more money in the long run if you make a credit card purchase rather than a cash advance. For example, for a $1,000 purchase, you’ll end up paying about $1,070 with the higher APR, interest, and transaction fee.
Because cash advances aren’t subject to the same rules as credit card purchases, issuers can charge more by upping interest and fees. Advances don’t have interest-free grace periods like credit cards do, among other things. The survey found nearly 80 percent of cards charge an APR that’s more than 20 percent.
“Unlike credit card purchase rates, cash advance APRs are rarely based on cardholder creditworthiness,” the survey says. “This means that while you may have a card with a low purchase APR, your cash advance rate is likely much higher.”
Not only is the APR higher, fees are almost always charged. Last year, issuers made $26.6 billion in cash advance fees. It was the second-highest source of income for issuers in 2016 (first was the interchange fees charged to retailers every time you swipe your card, making $42.4 billion).
Aside from higher fees and APRs, cash advances typically don’t have the same benefits and flexibility as regular cards. There’s a limit to how much money you can take out, usually a percentage of your credit limit. The survey says some cards limit users to how many transactions can be made each day. Keep in mind that the more transactions you make, the more fees you get charged, as transaction fees are usually $10 or 5 percent of the transaction each time one is made.
Where to get money instead of a cash advance
If you’re looking to your credit card for quick money, explore your other options before going down this road.
If you have the resources, you can ask family and friends for money as long as you have a solid agreement on a payback plan. It’s hard enough lending money to relatives, so as the borrower, make sure you get your loan repayment plan in writing regardless of who you are getting money from. Needless to say, your relationship with a faceless bank isn’t going to get as bad as your relationship with a loved one when you can’t pay up.
Friends and family may not always be helpful, so if that option doesn’t work, try selling some old goods. You may want to consider pawning some valuable items, if you’re willing to part with them. Make sure you know the value of the goods. Just because a family heirloom was passed down for generations doesn’t mean it’s necessarily worth something. Get it appraised.
In a pinch, you can withdraw from your emergency savings, but try not to make a habit of it. Creditcards.com says to use cash advances only as a last resort and advise against any sort of payday loan — which have even higher interest and fees.
Article last modified on June 26, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Don’t Take Advantage of Credit Card Cash Advances - AMP.