One of the convenience features built into most credit cards allow customers to withdraw money directly from ATMs in exchange for added fees and interest on the said amount to your credit card. Before making the decision to use a cash advance, you should fully understand all of the terms of your card and know what limits and costs you may be facing. Let's learn about the different types of cash advances and when they are and are not a good idea.
Types of Cash Advances
There are two main types of cash advances available to credit card consumers: cash advances from banks and cash advances wired to your checking account. Bank cash advances allow you to withdraw money from an ATM. Generally speaking, you are limited to a specific amount (regardless of limit) that you can borrow or “be advanced” at any given time. Direct deposit advances are often used by individuals to wire a portion of the credit line surplus from the card to a bank account. Usually, there are no limits on how much you can use during a direct deposit advance, so long as it is within your normal credit card limit.
Downsides to Cash Advances
Cash advances – and their resulting balances – work differently than traditional credit card debt. While many cards don't charge you interest on purchases until after the first month, interest begins accruing immediately on a cash advance. This means that even if you pay if off one week later, you will still have to pay interest. On top of that, there is usually a fee (3-5%) on the balance borrowed that is automatically attached to the resulting debt. Even more so, the APR on cash advances is usually higher than your card's normal APR, so be prepared to accumulate interest charges at a faster rate if you do use this option.
Instead of a Cash Advance...
In many instances, you can simply use your credit card to make the purchase as opposed to getting a cash advance and then using that money to make a purchase. If the establishment in question only accepts cash you could try putting off the payment until a later date if possible. You can also avoid the situation altogether by always keeping tabs on your bank balance (i.e.: mobile banking), creating a budget to stick to week by week and setting aside extra cash each week into an emergency fund.
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