Stay Away From Credit Card Cash Advances

Money always seems to be tight doesn't it? We work hard but the bills keep coming in and sometimes you get to a place where you have to have money now and you have no place to turn. You remember that one option that you have never tried: A credit card cash advance.

As the old saying goes, desperate times call for desperate measures and if you absolutely need money right now and have no other place to turn, you may have no other choice but let's get to the bottom line before we explain. The bottom line is, don't do it unless you have no other choice.

Here are some reasons why you should say no to credit card cash advances:

1.) There's an upfront fee- Let's assume that you needed $100 and went to the ATM to get your money from your credit card. The withdrawal will show up on your credit card statement as a withdrawal of $102 to $104. That doesn't seem like that much money but what if you needed $1,000. That $20 to $40 is looking a little more significant now. Some credit cards simply charge a flat fee between $5 to $10.

2.) The interest rate is higher- Read the fine print on your credit card offers and you will see something that looks rather alarming. If the interest rate isn't high enough, you will notice that the cash advance interest rate is much higher than the normal interest rate. I looked at one card that had an interest rate of 14.99% for all purchases and 29.99% for all cash advances. We'll do some number crunching later.

3.) There is no grace period - the second that money leaves the ATM machine, interest starts to pile up. Most of the time you have between 20 and 30 days to pay off the purchase but not on cash advances. Get it today, pay interest tomorrow.

4.) Many creditors require you to pay your purchase balance before paying the cash advance balance. This is the killer! What if you have a couple of years worth of purchases to pay off. That means that your cash advance balance is stacking up annual interest (compounded of course) of 30%

Now that we have all of that figured out, let's look at the numbers. Are you sitting down? Our original withdrawal was $100. Add to that the $5 flat fee for borrowing and then 30% interested compounded each month you have a one year grand total of $139.49! But remember, we have to pay our purchases off so let's assume that you are going to take 4 years to pay off your purchase balance. Now, that $100 cash advance will cost you $141.60. You end up paying 41% interest over those 4 years!

Looking at these numbers, it's very clear to see why it's a bad idea if it can be avoided. Credit card cash advances may not be such a terrible option if you have no other credit card debt but chances are, you do and unless your situation is dire, look for other ways to pay that won't cost you as much money.

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