Know these cash advance realities before hitting the ATM for a costly credit card advance.

3 minute read

When you don’t have enough money to cover the rent, pay the mortgage or make your car payment, it may be tempting to run to the nearest ATM and take out a cash advance on your credit card to help you get by. A cash advance may not be your best option, however.

That’s because you could end up paying back a lot more than the cash advance amount you charged to your credit card.

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1. You’ll pay a cash advance fee

You always have to pay more for convenience, and grabbing cash charged to your credit card from the nearest ATM is no exception. So, how much will you pay for convenient cash?

Your credit card company may charge an upfront fee. “A common fee is 5% of the amount advanced or $10, whichever is higher,” according to credit bureau Experian.

If your cash advance transaction is at an ATM, the bank you withdraw money from may also charge its own service fee.

Find out: How to Avoid the Most Common Credit Card Fees

2. Brace yourself for a higher interest rate

One thing you can expect with a credit card cash advance is that you’ll pay a higher interest rate than you pay on new purchases with that same card. In fact, cash advance interest rates on some credit cards are more than 25%, according to Experian.

Find out: 8 Credit Card Offers That Could Backfire Later

3. Know your cash advance limit

Your credit card will likely have a cash advance limit, which is borrowed against your card’s total credit limit. To find out your card’s cash advance limit, look at your credit card statement or online account information. Also, make sure that charging a cash advance won’t push your total balance to an amount that exceeds the card’s credit limit.

Find out: 7 Hidden Ways Your Credit Card Is Costing You

4. Don’t expect a grace period

When you make new purchases with a credit card, you have up to a one-month grace period to pay them off before the credit card issuer begins charging interest on the charges. That’s often not the case with credit card cash advances, which can begin accumulating interest right away.

Find out: Can I Use Cash Advances to Pay Off Student Loans, Then Declare Bankruptcy?

5. Credit card payments may go towards earlier purchases

If you know you can repay the cash advance soon, that’s great. But keep in mind that when you make your next credit card payment, the payment might go towards paying for purchases with a lower interest rate first.

Meanwhile, you’ll keep on paying that higher interest rate on your cash advance while your payments are applied to outstanding purchases accruing less interest.

Find out: Can I Pay Off My Credit Card With Another Credit Card?

6. A cash advance could hurt your credit score

If you take a large cash advance on a credit card, the negative consequences aren’t necessarily limited to fees and a higher interest rate. Taking a large cash advance will also affect your credit utilization rate, which is the percentage of total revolving credit debt to the amount of your available credit.

It’s best to keep your credit utilization rate at 30% or lower, so adding a big cash advance to your total debt and raising that percentage can lower your credit score.

7. That convenience check is a cash advance

When you cash the typically blank “convenience check” that your credit card company may send in the mail, that transaction works like a cash advance. That means you’ll typically pay fees and a higher interest rate while receiving no grace period on the accumulated interest.

Cashing a convenience check for a large amount could also bump your balance up so you exceed your card’s credit limit, incurring more expense with a penalty fee.

8. Explore other options before taking a cash advance

Since putting a cash advance on your credit card is costlier than other charges made with the card due to fees and high-interest rates, don’t be too quick to run to the ATM or cash that convenience check.

Consider cash advance alternatives first, including borrowing from friends or family, getting a small personal loan from a bank or credit union, tapping your emergency fund or selling rarely used items around the house. Better yet, simply charge the purchase that you plan to spend the cash advance money on.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC