Credit Card Cash Advances
Today we’ll talk about credit card cash advances – how they work, what they cost, and important tips. First off, there are two types of credit card cash advances.
The first and more common type happens when you treat your credit card like a debit card, using it to withdraw cash from an ATM.
The second type of cash advance allows you to tap into your credit line using a special type of check from your credit card company. You can use the check to pay anyone, or even deposit money in your bank account. Now that you know how they work in general, we can talk about the heavy fees associated with cash advances.
Most credit card companies charge either a percentage of the cash advance amount or a flat fee – whichever is higher. According to WalletHub’s Credit Card Landscape Report, the average is 3% or $10. And on top of all that, cash advances come with interest rates above 20%.
There is no grace period, either, so the interest starts accruing immediately. This all adds up. As a result, we strongly recommend avoiding cash advances for three main reasons: One – They are very costly. Two – Doing a cash advance because you are short on money can create a vicious cycle of borrowing for immediate needs that can spiral down to payday loans, and Three – They do not look good in the eyes of your credit card company. Taking out a cash advance makes you look like a high-risk customer.