Cash from Credit Card: Convenience vs. Cost

Strategies for Cash Withdrawals from Credit Cards

Withdrawing cash from a credit card, often called a cash advance, can be a quick solution, but it comes with a hefty price tag. Here’s a breakdown of methods and their pros and cons:

Methods:

• ATM Cash Advance:
  • Convenience: Widest availability, accessible at ATMs.
  • Cost: Highest fees (often 5% of the amount or a flat fee, whichever is higher) and a much higher interest rate (cash advance APR) that starts accruing immediately.
  • Consequence: Most expensive option, can quickly lead to debt.
• Convenience Checks:
  • Convenience: Mailed by your credit card issuer, can be cashed at a bank or used for money orders.
  • Cost: Expect a fee per check in addition to the cash advance APR.
  • Consequence: Tempting to spend the entire amount, leading to high interest charges.
• Cash Back at Point-of-Sale (POS):
  • Convenience: Limited availability at some merchants with a cash-back option.
  • Cost: May incur a small fee depending on the merchant and card network.
  • Consequence: Generally the least expensive option, but availability is limited.

Pros and Cons of Credit Card Cash Withdrawals

Pros:

• Convenient Access to Cash:
  • Credit card cash withdrawals provide instant access to funds during emergencies.
  • No documentation or approval is needed.
• Useful for Emergencies:
  • Cash withdrawals can be a lifeline during urgent situations.
• Easy to Withdraw via ATMs:
  • ATMs make it straightforward to access cash.

Cons:

• High Fees and Interest Rates:
  • Credit card cash withdrawals come with substantial fees and higher interest rates.
  • These fees are separate from the interest charged on the withdrawn amount.
• Potential Impact on Credit Score:
  • Frequent cash withdrawals may negatively affect your credit history.
  • Repaying promptly is crucial to avoid harming your credit score.
• Risk of Debt Accumulation:
  • If not managed carefully, cash withdrawals can lead to a cycle of debt.

General Precautions:

• Avoid cash advances whenever possible.
• Consider alternatives: Sell unused items, look for a side hustle, or explore a personal loan with a lower interest rate.
• Shop around for cards with lower cash advance APRs. If you must use a cash advance, minimize the amount and repay it quickly.
• Be aware of ATM fees. Some ATMs charge additional fees on top of the cash advance fee.

Where to go to do a cash advance on your credit card

If you absolutely must get a cash advance from your credit card here are some suggestions and places to go (and avoid) to do a credit card cash advance.

While casinos and check cashing places might seem like quick options for a cash advance, they typically aren’t the best choices due to high fees. Here are the more common places for cash advances, with some additional advice:

Traditional Options:

• Banks and ATMs: Your bank’s ATM or teller window might offer cash advances, but be aware of their fees and interest rates, which can be high.

Retail Locations (Limited Availability):

• Payday Loan Stores: These stores offer cash advances but with very high interest rates and short repayment terms. Not recommended unless absolutely necessary.
• Some Large Retail Stores: Certain stores may offer cash advances at their customer service counters, but again, check the fees and terms carefully.

Better Alternatives (if you must):

• Credit Union Cash Advances: Credit unions are member-owned and often offer lower cash advance fees and interest rates compared to banks.

Do’s and don’t of cash advances:

• Avoid Casinos and Check Cashing Places: These locations typically charge the highest fees for cash advances.
• Explore All Options First: Consider selling unused items, a side hustle, or a personal loan before resorting to a cash advance.
• Shop Around for Lower Fees: If a cash advance is unavoidable, compare fees and interest rates offered by different banks or credit unions.

Alternatives to Consider:

• Debit card withdrawal: Use your debit card to access funds directly from your checking account (assuming you have sufficient funds).
• Credit card with a 0% APR on balance transfers: If you qualify, transfer the cash advance balance to a card with a 0% introductory APR to avoid interest charges during the promotional period. Be sure to pay it off before the introductory period ends to avoid high regular APR.

Comparing the Options

• Convenience: Cash back at POS transactions generally offer the most convenience, as they can be done during a regular purchase. ATM cash advances are also convenient but may require finding an ATM. Convenience checks require more effort and time to process.
• Cost: All options typically involve fees and interest charges. ATM cash advances and convenience checks often have the highest fees and interest rates. Cash back at POS might offer lower costs but varies widely by card and retailer.
• Potential Consequences: Excessive use of cash advances can lead to high debts and interest charges, negatively affecting your credit score. Frequent advances might signal to lenders that you’re under financial stress, impacting your creditworthiness.

Cash advances are considered a last resort. They can be a convenient way to get cash, but the hefty fees and interest rates can quickly transform even a little withdrawal into a major debt burden. Before taking out a cash advance, consider all of your options and evaluate the benefits against the risks.