Always remember and never forget — easy money is never easy.
Case in point, credit card cash advances. As long as you have some daylight between what you’ve already spent and the credit limit associated with your account, you can stop at any ATM, pop in your credit card and grab some fast cash.
But trust us, that’s going to be the most expensive cash you’ll ever get, which is why credit card cash advances are a bad idea.
Fees, Fees And Yes, More Fees
Most card issuers charge up to a five percent fee on any cash advance you take. In other words, that quick 500 bucks you just scored will cost you up to $525 dollars when you pay it back.
But wait, there’s more.
You’ll encounter a fee from the owner of the ATM as well. This can run up to five dollars, so now you’re looking at a total of $530 — and counting.
Elevated APR Charges
Every card issuer out there applies one APR for purchases and another — much higher one — for cash advances. A card with 9.99% APR on purchases can carry a 25% APR on cash advances. Possessing this knowledge, who in their right mind would accept a personal loan with an interest rate of 25 percent?
Getting back to that $500 cash advance we discussed above, you’ll owe an additional $125 if you allow it to go unpaid for a year. This brings our total to $655, for a $500 loan. But wait, it doesn’t stop there. Credit card companies compound interest, so the longer it takes to repay that advance the more expensive it will continue to become — at 25 percent per annum.
Interest Begins Accruing Immediately
There is no grace period with a cash advance like the one you get with purchases. In other words, while you’ll get a window of time within which you can pay back the cost of a purchase and incur no interest penalties, you’ll owe interest on that advance the instant the cash comes out of the machine. Yes, you can minimize the amount by repaying it as quickly as possible, but you’re going to pay some interest on it regardless.
They’re Difficult to Repay
Beyond the interest charged, advances are hard to repay because of the way card issuers allocate the money you make in payments. If you have a balance for purchases and you add a cash advance to the mix, your payments will be allocated to the charges with the lowest interest rates first, then whatever’s left after the minimum payment is applied to that balance gets applied to the cash advance.
This makes an advance take longer to repay, which in turn means it will accrue more interest and remember, that interest accrues interest charges too. This can eventually push you over your credit limit, which will cause your base interest rate to go up on purchases and trigger over limit fees. If this has already happened to you, and you’re wondering how you’re ever going to resolve that obligation, looking into a credit card debt relief program is a good way to unravel that problem.
A Bad Problem Gets Worse
As you can see, there is far more downside to getting your hands on money this way than upside. You’ll owe a lot more money in the long run and it has the potential to spiral out of control if your finances are marginal enough to make this seem like an attractive proposition. Pursue this avenue only if every other source of funds available to you is tapped out.
Credit card cash advances are a bad idea — period.