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When you need cash fast, heading to the ATM and withdrawing money from your credit card sounds like the perfect quick fix. You most likely have at least 1 credit card – most consumers these days have 3 cards – making them one of the first places you think to turn when you need money.
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Many credit cards let you take out cash advances which is convenient but the negative financial consequences should make you think twice.
Let’s explore what it means to borrow cash from your credit line and why it’s not the ideal solution it appears to be.
What is a Cash Advance?
A cash advance is when you use your credit card to withdraw cash rather than charge a purchase. It is similar to using an ATM or writing a check. When you take out a cash advance, you borrow against your credit card’s credit limit. It’s a convenient way to access cash when you don’t have it on hand, but it’s important to be aware of the associated fees and interest rates.
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How to Get Cash from a Credit Card
There are multiple ways to get a cash advance from your credit card. The most common is to withdraw cash from an ATM just like with a debit card.
- Find an ATM within your credit card’s network
- Insert your card and enter your PIN (if you don’t have one, call your card issuer)
- Select ‘cash withdrawal’ or ‘cash advance’
- Enter the amount you’d like to withdraw
- Review fees and approve the transaction
- Collect your cash
You can also request cash advance checks from your card issuer or go to your local bank and withdraw cash directly from the bank teller.
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Things to Consider Before Taking a Cash Advance:
Before opting for a cash advance, it’s essential to understand the potential drawbacks. It costs money to withdraw cash from a credit card and the charges can add up quickly.
High Interest Rates
Cash advances typically have higher interest rates than regular credit card purchases. The average APR for cash advances ranges from 20% to 25%. Interest begins accruing as soon as you withdraw the money, so try to repay the cash advance as soon as possible.
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Cash Advance Fees
Credit card companies often charge a fee of 3% to 5% for cash advances. For instance, if you withdraw $500 with a 5% fee you will pay $25.
Impact on Your Credit Score
Taking a cash advance may negatively affect your credit score, especially if you don’t repay it promptly. The advance can increase your credit utilization ratio, which will lower your credit.
No grace period
Unlike with purchases you make on your credit card that you have at least 21 days to pay off before you accrue interest, cash advances start accruing interest from the moment you withdraw the cash.
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Alternatives to a Cash Advance
If you need cash fast there are other ways to get it that do not come with the high interest rates and fees of a credit card cash advance. Consider these alternatives before you use your credit card at an ATM:
- Payment Apps like Venmo, PayPal, or Cash App
- Personal Loan
- Debit Card
- Borrow from Friends and Family
- Cash Advance Apps like Dave
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The Bottom Line
Cash advances from your credit card may be fast and easy but they should be considered a last resort. They come with hefty fees, higher interest rates than for regular credit purchases, and most card issuers don’t offer a grace period, which means interest will start piling on the day you withdraw money. Before you resort to a credit card cash advance consider a payment app, using your debit card, a personal loan, a cash advance app, or borrowing money from friends and family. There are plenty of ways to get fast cash easily and cheaply.
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