Most people will encounter a time where they will need instant access to cash. If you have a credit card, you may be considering a cash advance to help you out of a tight financial spot. However, cash advances should always be used with caution and only in emergencies. 

What is a credit card cash advance?

Credit card cash advances allow you to withdraw cash from your credit card. Typically, you can accomplish this by either utilizing an ATM or visiting your financial institution. 

However, unlike withdrawing money with your debit or ATM card, when you use your credit card to withdraw cash, you add to your credit card balance. Doing so will likely result in you paying costly fees and higher interest rates.

  While cash advances can help tremendously during tight times, they should be used with restraint and only in emergencies.

Why You Should Avoid Using a Cash Advance

• Costly fees. Some credit cards will charge an extra fee for using the cash advance service. This cash advance fee could end up costing you anywhere from 3% to 5% of the amount of cash you are withdrawing. So, if you withdraw $500, you could end up paying a fee of up to $25. If you utilize an ATM to withdraw the funds, you may also incur an ATM withdrawal fee. 
• Higher interest rates. Many credit cards also charge a higher interest rate on cash advances. For example, your regular interest rate may be 12% APR, but the interest rate for a cash advance is 18% APR. Always review the terms and conditions relating to your credit card before taking advantage of a cash advance.  
• No grace periods. With most credit card purchases, you’re given a grace period of 20 or more days to pay off your purchase without interest. However, if you use a cash advance, interest on your purchase usually starts accumulating immediately.
• Limited withdrawal amount. It’s important to know there may be a limit on the amount you can withdraw as a cash advance. For example, if you have an available balance of $2,500 on your credit card, you may only be able to withdraw a portion of that amount. Be sure to check with your credit card company for withdrawal limitations.  
• Bad financial habits. Credit cards already offer one of the most convenient ways to pay online and in person. This convenience alone leads many people to mismanage their money and struggle with credit card debt. However, using your credit card as an ATM card can result in even more financial challenges and build habits that are difficult to break. It’s important to remember that credit cards are loans and must always be managed responsibly.

Alternatives to a Cash Advance

• Emergency Fund. Inevitably, there will be times you need to pay for things that are outside of your monthly budget. During these times, an emergency fund can come in handy. When you can, be proactive and focus on building an emergency fund. Utilize Payroll Deduction to make saving easier. With Payroll Deduction, you select a certain amount to be transferred to a savings account each time you get paid. By automating this process, you’re more likely to save on an ongoing basis.
• Personal loan. A personal loan could be a better option when you need access to cash. With interest rates generally much lower than most credit cards, they provide a lower-cost alternative to cash advances. Plus, personal loans have set monthly payments that will help you pay off the loan quicker versus only making minimum payments on a credit card. However, as with any loan, you will need to apply, and it may take a bit to get access to the funds you need. 

We’re Here to Help!

While cash advances can come in handy when you need instant access to money, it is best to avoid them. In addition to higher interest rates and possible fees, they can lead to many bad financial habits.

If you have questions about cash advances or you’re looking for other alternatives, we’re ready to help. Give us a call at 202-479-2270 or email us at members@agfed.org, and we’ll work with you one-on-one to find the right solution for you.