Cash Advance Warning: Know the Costs
Withdrawing Cash from Credit Cards at ATMs Carries Significant Costs and Risks
Anonymous
Using a credit card to pull cash from an ATM sounds simple. But it comes with steep fees and sky-high interest that can trap you in a cycle of debt, according to WVVA.
The move is called a cash advance. Any money you withdraw gets added to your credit card balance — and the costs start piling up the moment you take it, Fox Carolina reports.
Fees and Interest Hit You From Day One
The first hit is a cash advance fee. Card issuers charge 3% to 5% of whatever you withdraw, according to FOX5 Vegas. Pull out $500 and you immediately owe $15 to $25 on top of that.
Then comes the interest. Cash advance rates can reach as high as 30%, AZ Family reports. That rate is almost always higher than your card's standard purchase rate. Worse, there is no grace period. Interest starts building the second you take the cash — not at the end of your billing cycle.
Your Credit Score Can Take a Hit Too
A cash advance increases your credit card balance right away. That raises your credit utilization — meaning how much of your available credit you are using. A higher utilization rate can drag down your credit score, WEAU notes.
The less available credit you have, the worse it looks to lenders. Even if you pay the balance back quickly, the damage to your score may already be done by the time your card issuer reports to the credit bureaus, according to Atlanta News First.
Cash Advances Cost Far More Than They Appear
Many people assume a cash advance works like a debit card withdrawal. It does not. With a debit card, you spend money you already have. With a cash advance, you borrow money at one of the highest rates your card charges, WSAW explains.
Because interest starts accruing immediately and there is no grace period, even a short-term advance gets expensive fast. A $300 advance at a 29% rate with a 5% fee costs you $15 upfront — plus daily interest from day one, according to WDAM.
Better Options Exist If You Need Quick Cash
If you need money fast, a personal loan is a smarter choice. Personal loans typically carry much lower interest rates than credit card cash advances, 1011 Now reports. Many banks and credit unions can approve a small personal loan quickly.
You could also look into borrowing from a friend or family member, or tapping an emergency savings account. The key takeaway is simple: a cash advance should be a last resort, not a first move, according to Live 5 News.
Sentiment
NeutralNEGATIVENEUTRALPOSITIVE
Publishers
13
Articles
13
Reach
13
A
AnonymousAuthor