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Friday, October 31st, 2014


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Credit Card Cash Advance Pitfalls

Credit card cash advances can provide consumers with convenient and instant access to “cold cash” in times of financial need, but cash advances should be avoided if at all possible. Informed consumers realize that cash advances are typically accompanied by fees and exorbitant interest rates (there is also no grace periodfor cash advances). Moreover, cash advances can be a major stumbling block for consumers seeking debt relief. We hope the following tips help consumers avoid the pitfalls associated with cash advances.


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* Fees for cash advances vary, but fees can be very costly. Fees are computed using two calculation methods. Many card issuers calculate fees on a percentage basis, which typically ranges from 1% to 4%. Other issuers charge “flat fees” for advances. “Flat fees” are not based on the amount of the advance and, therefore, are always the same.

An increasing trend is to combine both calculation methods. Combining calculation methods results in higher cash advance fees. An example of this would be an issuer that charges x% for an advance, but charges a minimum of $10 regardless of the amount of the advance. Another example would be an issuer that charges x% for an advance or $20, whichever is greater. Read the terms of your card agreement carefully. Fee calculation can get tricky.

A few issuers do not charge any fees at all. This is very rare, though.

Find a low fee credit card. Transfer your balance.

Finally, if you must get an advance, avoid using ATM machines. ATMs charge an additional fee for advances. This fee is charged by the financial institution that owns the ATM.

* Often the greatest potential pitfall for consumers who decide to get a cash advance involves finance or interest charges. The interest rate for cash advances is often several points higher than the normal purchase interest rate (the rate that is associated with everyday card purchases). Cash advance rates normally range from 20% to 25%. In contrast, the average purchase rate for a standard credit card ranges from 15.88% to 17.30% according to. However, a few issuers charge the same rate for both purchases and cash advances “Low Rate Report” for more info).

Other finance charge pitfalls involve grace periods and the payment method that a card issuer utilizes. Cash advances begin accruing interest immediately and, therefore, are not subject to a grace period. Thus, even if you pay your card balance in full when your bill arrives, you will still be accessed a finance charge for any advances.

A similar pitfall involves the manner in which payments are applied to your account. Most issuers apply payments to card purchases before they apply payments to cash advances (i.e. payments are first applied to purchases). If you carry a balance on your card, this can result in your a dramatic increase in your finance charges and overall interest rate.

Cash Advance Warnings

* Please be aware that any “credit card checks” that you receive in the mail are usually treated as cash advances! Card issuers often tout such checks as an easy way to pay off the bill of your choice or to acquire some extra spending money. While using a check may be convenient, it can be extremely costly. Many balance transfers are also treated as cash advances.

* Dependency on cash advances can be an outward sign of serious debt problems. Consumers that regularly rely on advances to “make ends meet” urgently need debt counseling. Cash advances are so tempting that some cardholders fall victim to the “cash advance trap” and find themselves caught in a vicious cycle. If this statement applies to you or someone you know, please consult CardRating.com’s “Get Debt Relief” section for a list of helpful resources

CashBack Credit Cards — Consumer Tips
How to Avoid Credit Card Traps
How to Win the Credit War

This entry was posted in Credit & Debt, Credit Basics. Bookmark the permalink.

21 Responses to Credit Card Cash Advance Pitfalls

  1. its a good article says:

    very detailed and has lots of information

  2. jessse- Canada says:

    thats an incredible advice, keep up the good work.\

  3. shankar says:

    If we use credit cards in ATM, what is the pin number that we need to use.

  4. eldridge@frognet.net says:

    not clear

  5. Sherry says:

    I NEVER use cash advance…then I did–one time—$300.00 in Oct.’08. I proceeded to make $500.00 payments each month on my credit card balance. Now, March ’09, my ‘cash advance’ balance is $324.00. WTF??? NEVER, EVER USE CASH ADVANCE!!!!

  6. Nix says:

    I had a credit card and I cashed 200? but every month I was paying that I used it. It was so expensive… Sherry is ABSOLUTELY right.

  7. MIKE says:

    YOU STUPID PEOPLE!CREDIT CARD IS THE BEST THING ON THIS WORLD.FOOOOOOOOOOOOOOLS!!!

  8. ML says:

    Thanks so much, great down to earth information. One question that I wanted to know about caash advances is… Does a percentage rate increase in cash advances increase the annual percentage rate on all purchases?

  9. Jack says:

    Incorrect. Credit Card Checks are not always treated as Cash Advances regarding fee’s. They’re sometimes (fee wise) treated as normal purchases (same rate, no fee, grace included), and as such, a viable solution to the Cash Advance fee’s problem.

    Reference; Capitol One.

  10. stupid genius says:

    Couldn’t you put excess money on your credit card, so when you used cash advance, it is paid off immediately. This would especially be great if you collect point on your credit card (e.g. paying rent)

  11. Name says:

    Great Atricle

  12. Dipesh Shrestha says:

    It was very helpful to me to. The line subjected “Other finance charge pitfalls involve grace periods …….” was exactly the same that happened to me. This article gave me te lesson that I needed to learn. Thank you very much. I will be careful from today in money transfers and the leading consequences of cash advance fees and it’s interset.
    Best regards.

  13. BRENDA EARLS says:

    IF U HAVE NEVER USED A CASH ADVANCE ON YOUR CREDIT CARD, THEY ARE
    NOT ALLOWED TO CHARGE U FOR A CASH ADVANCE ARE THEY? I USE TO HAVE
    PROVIDIAN BUT CLOSED THE ACCOUNT YEARS AGO, BUT STILL PAYING
    ONTIME, THEN CHASE TO THEM OVER AND I HAVE NOTICED THAT CHASE
    CHARGES A CASH ADVANCE BUT I HAVE NEVER USED A CASH ADVANCE IS THIS POSSIBILY THAT CHASE IS ALOUD TO DO THIS. THANK U

  14. corneliu says:

    how is work ..if you take cash money from the credit card? if they send you check cash? they put the balance on the visa..? & how is working with the fee? if you transfer the cash mony from the visa with cash too ather visa with 0% apr is it mot fees

  15. Kay says:

    Um…the one situation where it makes sense to me to use a cash advance is to speed up paying off a loan, as I did. I always hear financial advisors warn to pay off the higher interest stuff first (i.e. cash advance, credit card) and pay the minimum on low interest loans. However in my case, over the course of one year the interest/finance charges on a credit card balance of $2000 with an APR of 22% works out to significantly less than the interest accrued on a student loan of $65,000 with an APR of 6.8%. In other words, by using cash advances for a few months to pay more than the minimum on my student loan, i’m actually saving thousands of dollars in interest by decreasing my loan balance as quickly as possible.
    This seems like an especially good SHORT TERM solution for people who have very little credit debt, lots of loan debt. For example, with the cash advances, in the above example my credit card interest will be approx $48/mo. Whereas my current student loan interest amounts to $370/mo. So doesn’t it make sense to pay off the largest debt first, regardless of interest rate? Or am I missing something?

  16. Lise G. says:

    Answering to Brenda Earls : I have the same problem, exactly the same, with Bank of America. I spend one hour trying to know WHY they are charging a cash advance on my credit card , they were rude, they did not know what to say – I am 72 years old and I am going to investigate tomorrow morning :: enough is enough ! look for my name on the news !

    PTW why you people do not answer our questions ?

  17. spidey says:

    well me personally I think everyones situation is different.IE if your pros out way the cons. do it.. if you have a 300 dollar bill due.and if it’s not paid the collection agency turns it into 600 dollars like they are going to do me.i would rather pay that extra 30 bucks loan fees through my bank than deal with collectors.This is great advice but everyones ones situation with advance needs for $$$ will be different. keep up the good work

  18. David Smith says:

    Get a cash advance before payday and borrow up to £750.00. No credit checks, no faxing and no hassle. & Get an immediate cash loan today and borrow up to £750.00. No credit checks, no faxing and no hassle.

  19. janet canty says:

    Thanx

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