Especially when traveling, credit card cash advances are a convenient way to access funds. We all know that these cash advances are expensive, however, and we should not get a cash advance unless there is no other option. Nevertheless, most of us have been in cash-strapped situations, particularly while vacationing. Just remember to use those credit card cash advances wisely. Banks and other credit card issuers make a fortune providing instant gratification. Keep in mind that credit card cash advances must be avoided, if possible.
What Are Credit Card Cash Advances?
A credit card cash advance is simply an easy way to borrow money. It is an option that cardholders may use to access cash, which is applied to their current balance – as opposed to using the card for an actual purchase. For most credit card users, the amount of funds available for cash advances is a percentage of the overall credit limit. Monthly credit card statements issued by banks will usually show two spending limits: the overall credit limit and the limit for cash advances.
Obtaining Credit Card Cash Advances
Your credit card can be a powerful and effective tool for managing your financial situation. It can protect you from buying defective products by allowing you to use the goods before paying for them. It also reduces the need for cash or checks when you’re far from home. It can also allow you to manage personal and business transactions using the Internet, phone or postal mail. Like all tools, however, your credit card must be used carefully. This is especially true when using your credit card’s greatest power: getting large amounts of instant cash. Some routine ways of obtaining credit card cash advances are:
1) ATM withdrawal
2) Writing out a check that is frequently attached to your credit card statement
3) Filling out forms at a bank branch to collect the money
Each of these methods can provide the cash you need – but that doesn’t mean that they’re all equal. If you must obtain a credit card cash advance, avoid using ATMs. ATMs charge an additional fee for credit card cash advances. This fee is charged by the financial institution that operates the ATM.
Finance Charges on Credit Card Cash Advances
There is another common problem associated with each method of obtaining credit card cash advances: finance charges. No matter which method you use to take the money, you will be charged interest fees and finance charges for the transaction. Credit card cash advances begin accruing interest quickly and are not subject to a grace period. Therefore, even if you pay your credit card balance in full upon receipt of your bill, you will be accessed finance charges for the credit card cash advances.
Banks are Recouping Losses … with Cash Advances
The recent consumer advocacy legislation, the CARD act, hit the banking industry hard. So while the volume of credit card cash advances has dropped over the past few years, the cost has gone up. The cost of an average cash advance rose from 3.9 percent in 2008 to 4.9 percent in 2012. Before the CARD act, in 2009, the amount of cash borrowed from one major credit card issuer totaled more than $104 billion. That figure represents an eight percent increase over the prior year, which tells us that credit card users have relied on plastic as a substitute for traditional forms of borrowing, such as personal loans. Not surprisingly, credit card companies have become increasingly willing to loan advanced cash. Even less surprisingly, credit card issuing companies are also increasing fees and interest charges associated with cash advances.
Ask Your Issuing Bank About the Terms
Don’t trust your monthly statement to spell out the terms of cash advances. Your monthly statement reveals some of the specifics on how finance charges are billed, but, in most cases, it will not divulge what those charges are. If you don’t know, it is always a smart idea to ask. Call the customer service phone number on your monthly statement and ask questions. Understanding the terms of credit card cash advances is no different from shopping for the best interest rate on a bank loan before you sign on the dotted line.
The Cost of Borrowing Cash
Whenever you use your credit card for a pair of new shoes or a DVD movie, those items are yours to own. You can keep them for years to come and pay for those purchases over a few months, if you wish. On the other hand, when you get a credit card cash advance to pay for daily necessities (like gas and groceries), you will spend much more for that privilege. You simply must pay off credit card cash advances as soon as you can.
The Fine Print
Making a quick payment is not all you need to worry about. By reading the fine print on your monthly statement, you will discover that, in most cases, payments to your credit card company are applied first to interest charges, before they begin eliminating your debt for borrowing cash. For example, if your revolving balance of $2,000 includes a $1,000 cash advance and you pay off $400 per month, it will take three months before your payments even begin to cover the actual advance. That’s three additional months that the credit card issuer can charge a higher interest rate for the goods and services you bought with advanced cash.
The Moral of the Story
Use a credit card cash advance wisely and only borrow enough money to settle your immediate financial obligations. After you resolve the issue, set a goal to pay off credit card cash advances fast. Be smart about using a credit card cash advance and you won’t get deeper into debt.