You need some cash, you have a credit card, and the logical solution seems to be to get a cash advance using your credit card. You can pay it back later, right? The truth is that cash advances are not a good idea in most instances. Yes, there are times when it seems like a cash advance is the way to go, but in most cases it’s best to avoid this particular feature on your card.
You may not realize this, but as a rule, the interest rate on cash advances is higher than the interest rate for purchases. You may have a fantastic rate for purchases, but use your card for a cash advance and you may wind up with an interest rate on the cash advance that is flirting with 20% interest rate or higher.
When you make a purchase on your credit card there is usually a grace period that allows you to pay the balance before any interest is accrued. This isn’t usually the situation with cash advances. Interest on cash advances starts right away, so by the time your statement comes you’ve already been charged interest on the cash advance.
When you send your payment in, the credit card company applies it to the portion of your balance with the lowest interest rate first. In other words, it’s going to take you longer to pay off your high interest cash advance than your regular purchases.
If you walk into a bank and request a cash advance off your credit card you might find yourself paying the bank for assisting you with the transaction. You don’t even have the cash in your hand yet, but you’re already handing some it over to the bank.
This could be a sign of a bigger problem if you are turning to credit card cash advances out of necessity because you can’t get your hands on any money. What is going on with your finances that you don’t have access to cash in an emergency? You shouldn’t fall into the pattern of needing your credit card to bail you out when you need some cash because you’re setting yourself up for trouble.
Keep in mind that credit card cash advances aren’t limited to ATM withdrawals or pulling cash out at a financial institution. Convenience checks that credit card companies send you may also have all the same
trappings as cash advances unless they fall under a promotional interest rate.
In any case, it’s best to avoid cash advances. If you must use them be sure you understand all the extra fees that may be involved in the transaction. Cash advances should never be an ongoing solution to financial difficulties. If you find that you’re pulling cash off your card constantly, this is a sign that something has to change.