Home Financial Education 5 Reasons to Avoid Credit Card Cash Advances

5 Reasons to Avoid Credit Card Cash Advances

Published February 2021 by Jordan Semprevivo
Man withdrawing cash from an ATM

According to a recent survey by Highland, a majority of Americans have been hit hard financially since the global pandemic of 2020. Though 53% reported they were not doing so before the pandemic, now 63% admit that they are living from paycheck to paycheck.

Key Points:

  • Credit card advances are a very expensive loan.
  • Cash advances start accruing interest immediately.
  • Credit card advances can quickly put you deeper in debt.

Financial survey of Americans.

(Source: Highland)

And for some, the cash runs out before the week does. When that happens, it can be tempting to turn to credit cards for some quick cash in the form of a cash advance. But is that a good idea?

Here's why it is better to forego having cash in your pocket for a few days than to use your credit card to get a cash advance.

1. Credit Card Cash Advances Are Expensive Loans

Even though you go through the same steps at the ATM to get a credit card advance that you use when you get money from your debit card, the two transactions are nothing alike. When you withdraw money with your debit card, it's your own money. It comes from your own checking or savings account, which means you will not be paying a fee for using it. The only fee you might incur with a debit card withdrawal is a small fee for using the ATM itself.

On the other hand, when you withdraw cash from your credit card account, you are actually getting a loan from your credit card company. Worse yet, it's not even a loan with good terms. It usually comes with:

The reality is that a credit card cash advance is likely one of the most expensive types of loans you will ever have.

2. Cash Advances Start Accruing Interest Right Away

A cash advance does not grant you the luxury of a grace period. As soon as the transaction clears your credit card account, you start accruing interest on it. You can wait out the full billing cycle to pay the advance back in full, but you will save money paying it back as soon as you can. 

Because its interest is immediate, high, and persistent, a cash advance can fast-track you to credit card debt. It can also torpedo your debt relief efforts. 

3. Cash Advances and Minimum Payments Don't Play Well Together

It will take a substantial effort on your part to eliminate the debt you incur as the result of your cash advance withdrawals, especially if you often pay only the minimum payment due on your credit card account. 

FDIC laws generally require credit card issuers to apply payments made above the minimum amount to the account with the highest APR. There are no such requirements on minimum payments, however. That means that if you consistently pay only the minimum amount on your credit card, you will not be paying down your cash advance and it will continue to accrue interest at the higher rate for a longer period of time. That will, in turn, sink you further into debt. That's one reason credit card cash advances are like the "black hole" of loans.

4. You Cannot Withdraw Enough Cash to Solve a Serious Financial Problem

Considering the downsides already mentioned, you would need a really compelling reason for withdrawing cash from your credit card to make it a wise move. It is unlikely that such a compelling reason exists. Why can that be said?

Credit card companies typically limit the amount of cash you can get from your card. In most cases, you can withdraw no more than a few hundred dollars at a time. If you are in a serious financial bind, a few hundred dollars will likely not be enough to really help you, and taking out a credit card cash advance will, instead, just cause you to have further debt.

5. Cash Advances Can Quickly Send You Scrambling for Credit Card Help

Interest is your greatest enemy. It makes up the bulk of the cost of your debt, and it can throw a wrench into even the best thought-out financial plans. There is a reason why effective debt relief focuses on eliminating high APR debt as quickly as possible. 

With a credit card cash advance, you accrue interest in its worst form. That alone should be enough to convince you to avoid it at all costs. 

Get Credit Card Debt Relief

What should you do if you have already taken out cash advances and you find yourself in a downward spiral of debt that you cannot seem to control on your own? ClearOne Advantage is here to help. Our Certified Debt Specialists work with clients just like you every day to find debt relief solutions that really work. If you would like to learn how to get out of credit card debt in as little as 24-60 months, call us today at 866-481-1597 to learn what your credit card relief options are and get a free savings estimate.

Get a free savings estimate.

Topics: Financial Education