Important Things to Know About Cash Advances and Your Credit Card

Most of us use credit cards, probably more than we should when you consider the costs you incur using them, such as interest, transaction fees and other charges.

And I am sure we’ve all been in a situation where we needed cash right away, and didn’t have it available, except on our credit card.   This is when you should know what kind of charges you will be facing when taking cash out from your credit card.

Different Rates

If you are a frequent cash advance user, you might want to consider a credit card that offers lower rates on these advances.  Some are extremely high – over twenty-one percent, and some are more reasonable.  For a comparison into different rates, see Cash Advance Cards.

Understanding Cash Advances:

When using your card for specific purchases, such as clothing, meals, etc., you are charged a rate in which you have agreed, generally a lower rate than the fine print states for cash advances.  If you haven’t taken the time to read the ‘fine’ print, you might be surprised at how the credit card companies hike the interest rates for these transactions.

You might just be getting cash back from a purchase, buying travellers cheques, or purchasing foreign currency – but they are considered cash advances, and that is when that high rate kicks in, and that rate is applied from the time you withdraw your cash, until the time it is paid back.

Interest Free Period Does Not Apply

The cash advance charges are not included in a 55-day interest free credit card, or a low introductory interest rate card.  They become a separate item on your card and can sometimes be allocated differently than your average purchases.

Cash advances can be very convenient but unless you know how to handle paying off the balance you may be stuck with paying some pretty hefty interest fees. Understand the terms of your card before making the decision to take out a cash advance.

Allocation of Payments:

Another thing to be aware of when taking out a cash advance, are the allocations of payments decided by your credit card company.  An example is that if you were to take a hundred dollar cash advance, and you have a balance and new charges, at a low interest rate, the bank may choose to pay your lower interest balance first, leaving you with the cash advance still due, and accruing high interest and fees.

Make certain that when you sign up for that low interest cash advance card, that the allocation of payments clause indicates that your cash advances will be paid first, since they are high interest.

Why the high interest on cash advances?

Since the use of credit cards are generally for purchases, banks advertise low interest rates to tempt you to use their card for their most common use – purchasing.  They do not promote cash advance rates because they are not competitive, nor do they expose their higher rates for cash advances.

One cash advance of $20.00 could cost you between $2 – $10 bucks for that cash advance.

Finding a low cash advance card:

There are cash advance cards that waive the handling fee, which can be up to three percent of the transaction.  Some offer interest free on cash advances, but are far and few between.  You have to do your homework if you plan on taking out cash advances to avoid the hefty fees associated with them.

By all means, read the fine print.  Some interest rates on cash advances may be accelerated after a certain period, or may only be introductory.

Plan to pay your balance:

The best laid plan, of course, is to pay your balance every month, within the specified due dates to avoid all the fees associated with purchases and cash advances.  Leaving your cash advances in your balance will end up costing you one way or another, so budgeting and spending less is the smart goal.

Credit cards are tools with which to achieve good credit, and to have cash on hand when bills become overwhelming, and leave you financially strapped.  They should be used as such, and ATM debit cards, or cash would be the ultimate choice when making purchases and cash withdrawals.

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