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Credit Card Cash Advances Come With a High Cost

Francine L. Huff
LoanBiz Columnist

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A lot of people who are short of cash turn to credit card cash advances to help pay their bills. While cash advances can help people get through tight economic times, they will pay for the convenience. Here are some reasons taking a credit card cash advance may not be the best financial move.

 

Credit Card Companies Charge Fees

Most credit card companies charge fees for the convenience of advancing a lump sum of cash using checks or an ATM. Some companies charge a flat fee. Others calculate fees as a percentage of the advance and they can run from 2% to 4%. Using an ATM for a cash advance will result in another fee from the bank that owns the machine. The fine print of credit card agreements outlines exactly how fees are calculated.

 

Credit Card Interest Will Be High

Cash advances on credit cards also come with higher interest rates than standard purchases. The interest rate for an advance will usually be several points higher than what is charged for regular purchases, and may range from 20% to 25%, according to CardRatings.com. However, some credit card companies may charge the same rate for regular purchases and cash advances so it pays to shop around. Balance transfers with credit cards may also be treated as cash advances, resulting in fees and high interest.

 

There Is No Grace Period

Most cash advances and balance transfers on credit cards don't have a grace period, which is the amount of time during which customers won't owe finance charges if they pay off the total balance before the due date. That means finance charges will begin accruing the day the cash advance is taken. And even if the balance is paid in full by the due date, the cardholder will still be billed for the finance charge.

 

Limits on Advances

It's also important to understand how payments will be applied to cash advances. Generally, any payments will be applied to regular purchases first, which means those higher finance charges on the advance will quickly add up. The amount a customer can take in a cash advance may also be limited to a specific dollar amount or a percentage of the credit line.

 

No one should rely on cash advances to pay their monthly living expenses. Those who find themselves in this situation should get help immediately to set up a budget and pay down their debts.

 

Sources:

CardRatings 

Federal Reserve

 


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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