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Credit Card Cash Advances: Six Things to Consider Before You Swipe Your Credit Card at the ATM

by Barbara Marquand

When your checking account is running dry and you think you need money now, a cash advance on your credit card can be awfully tempting.

But before you swipe your credit card at the ATM, reconsider. Do you really need that money? Cash advances are expensive, and if they become a habit, they could lead you down a financial hole.

Here are six things you should know about cash advances:

1. High Interest on Credit Card Cash Advance

When you shopped for low interest credit cards, you probably focused on the interest rate charged on purchases. What you may not realize is that on most cards the interest rate on cash advances is usually higher than it is on purchases--often 20 percent or more. (Check the fine print of your credit card agreement for details.) Fortunately, under new federal credit card regulations, credit card companies must apply your monthly payments to the highest interest balances first, but you should still do whatever you can to avoid the high cash advance rate.

2. No Grace Period

Thanks to the grace period on credit cards, you pay no interest if you pay your balance on purchases in full every month. But with cash advances, usually there is no grace period. That means interest starts accruing the minute you get the money from the ATM, even if you plan to pay back the money as soon as it shows up on your monthly bill.

3. Credit Card Cash Advance Fee

Besides the high interest that starts accruing immediately, you may also pay a fee for a cash advance, and you might pay an ATM fee on top of that.

4. Cash Advance Limit

The credit limit on cash advances is often lower than your total credit card limit.

5. Credit Card Convenience Checks Same as Cash Advance

Any purchases made with those handy checks your credit card company sends you are treated the same as cash advances.

6. Risky Credit Card Behavior

Relying on cash advances to fill money gaps is a sign of major trouble ahead. Put your card back in your wallet and evaluate your budget and spending habits to see where things are going wrong.

Published 01/19/10 (Modified 03/11/11)

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