Questionable Advantages of Credit Card Cash Advances

April 18, 2008

Sometimes credit card issuers surprise me. They issue plastic money, talk about numerous advantages and conveniences of using credit cards, aggressively advertise credit products on every corner. But together with that, nearly every credit card deal has a cash advance option. This contradicts the conception of plastic money.

To talk seriously, it is pretty clear why card issuers offer such an option to their customers. People still do need cash at times. Of course, these days, plastics are accepted almost everywhere. But imagine your credit card with credit available does not get accepted. What would you do? Right, you would want to take a cash advance.

It seems to be easy and quite natural. If you have some certain amount of money on your credit card, you can use it. And what difference does it make if you pay with plastic or cash money? Actually, a cash advance is much more that meets the eye. Cash withdrawals will cost you not less than a missed payment, if not more. So, stop and think before obtaining cash from an ATM or you will stop and stare at your credit card bills at the end of the month.

Cash advance is a very expensive option. The average interest rate for cash advances is about 20-25%. Plus a flat fee for every single money withdrawal operation. Moreover, you will pay a fee for using some particular ATM! No matter what credit card you have - a low rate card deal, a hotel rewards, business, or a student credit card, using a cash advance you will pay almost twice the price of the initial cost of the good or service you want to get.

In addition to all those sky-high rates and fees, a rare credit card company gives you a promotional period free of those charges on cash advances.

Hold on, that's not it. You, probably, receive credit card checks by mail that give you a chance to get to a sufficient amount of money. Good for you, if you just throw them into a trash can. But once you decide to take advantage of them, your credit card company will consider it to be a cash advance and will charge you for a cash withdrawal. Lenders do not take pains to inform you that such checks are regarded as cash advances.

I hope, you will find all the above-mentioned points to be weighty argument against using a cash advance option. For the price you will pay for taking out some cash from your credit card is really too high. So, when you badly need cash to pay your credit card bills or pay off your credit card debt on another credit card, for instance, by no means use cash advances, otherwise you will dig yourself into a deeper debt. in such situations cash advances will not help you to improve your credit score.

This is the credit card companies' policy. On the one hand, they give you a freedom of choice. It is like they say: "No problem, the fact that you use a credit card does not oblige you to use plastic money only. Sure, go ahead, take out a cash advance." But the fees and rates say just the opposite: "You use cash owning a credit card? You are to pay for this."

So, think twice before taking out a cash advance from your credit card.