Beware the pitfalls of cash advances
Credit card cash advances can seem like a great option when you’re strapped for cash, particularly if you’re looking at a negative balance in your checking account and the mortgage is due.
Or your budget is stretched far beyond its means.
They’re often convenient if you forget to tote your checkbook or bank debit/credit card to the store or out to dinner. After all, there’s an ATM on practically every corner so you can pull cash out of your credit card anytime, anywhere.
But cash advances can stretch your already thin dollars even further. That’s because even though taking a cash advance on your credit card provides a quick infusion of money today, it can cost you big bucks tomorrow.
Credit card cash advance pitfalls include:
High interest rates. Even if you have a credit card that carries a low interest rate for purchases, the interest rate charged for cash advance is generally significantly higher. The Bank of America BankAmericard Visa card has an APR of 10.99% to 19.999% percent for purchases. However, the APR for cash advances shoots up to 24.24%. So unless you can pay that cash advance off as soon as the bill shows up, you’re going to pay significantly more for the cash.
Fees. The term cash advance is another way of saying "loan." And creditors generally charge consumers a 3% to 5% fee for the privilege of borrowing the cash. For instance, the Citibank Rewards Card charges 3% of the amount of each cash advance. And even if the advance is small, you’ll be hit with a $7.50 minimum fee, on top of the sky-high interest rate.
Promotions don’t apply. Cash advances are often not subject to any “interest-free days” offered on certain promotional purchases. For example, the Hilton Honors Credit Card from American Express usually offers users 25 interest-free days. Cash advances aren’t eligible.
Instead of taking a cash advance, if using your credit card is the only option to pay a bill or fix a flat tire, experts suggest swiping your credit card instead of pulling cash out of it.
That way you’ll save a little dough and make your budget happy, too.
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