When you need cash fast, a credit card cash advance can feel like a quick fix. But advances come with higher rates, fees, and interest that starts on day one. If you’re already carrying balances, a cash advance can make it harder to become debt-free. Here’s what to know about cash advances, plus less risky alternatives you can try.
Key Points:
- Credit card advances are some of the most expensive loans you can take on.
- There’s no grace period, so interest starts the day the advance posts.
- If you pay only the minimum, a high-APR cash-advance balance can linger.
- If you can wait, avoiding a cash advance can save you money.
What is a credit card cash advance?
When you use an ATM, a debit card withdrawal pulls your money from a checking or savings account. You might pay a small ATM fee, but there’s no loan involved.
A credit card cash advance is different. It’s a small, short-term loan against your card’s cash line. You’ll owe a cash advance fee, a higher APR than purchases, and interest starts the day the advance posts.
People usually consider a cash advance when they need cash fast for things a card won’t easily cover, like:
- Rent, security deposit, or bail
- Utility shutoff or urgent medical costs
- Car repairs or services that don’t take credit cards
- Money orders, wire transfers, or other cash-only payments
- Avoiding a worse consequence, like overdraft/NSF fees or a loan going 30 days late
Five reasons why you should consider an alternative
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 very expensive loans
When you withdraw cash from your credit card account, you are getting a loan from your credit card company. And it's not even a loan with good terms. It usually comes with:
- A higher APR than you pay on credit card purchases: Cash advances are the most expensive credit card products from an interest perspective.
- Additional cash advance fees that are figured as a percentage of the loan amount. Sometimes this fee is as much as 5%.
- Additional ATM fees: Typically, these fees range from $2–$5.
The reality is that credit card cash advances are one of the most expensive loans.
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, it starts accruing interest. You can wait out the full billing cycle to pay the advance back in full, but you will save money by 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. If you’re trying to become debt-free, this can torpedo your hard work.
3. Minimum payments barely touch cash advances
Cash-advance debt is hard to pay off, especially if you only make minimum payments. Under Regulation Z (CARD Act), if you make more than a minimum payment, the credit card issuer must apply payments made above the minimum to the highest-APR balance.
If you only make the minimum payment, the card issuer is free to decide how to allocate that payment according to its terms.
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.
An example scenario:
Let’s say you owe:
- $800 in purchases at 22% APR
- $200 cash advance at 30% APR
- $1,000 balance transfer at 5%
Your minimum payment is $40. If you pay only $40, the issuer can apply your payment however its terms allow. This means that little (or none) may hit the 30% cash-advance bucket, so it keeps accruing expensive interest.
4. Cash advances often fall short in emergencies
Your card has a separate cash-advance limit that is usually smaller than your total credit line. The exact amount varies by issuer and account, but in some cases it may be several hundred dollars or less. On top of that, ATM and daily caps can limit each withdrawal, so you may only get a few hundred dollars at a time.
If you’re facing a big expense, that may not fix the problem. And once you add cash-advance fees and higher interest with no grace period, the debt can grow fast.
5. Cash advances can send you scrambling for help
With a credit card cash advance, you accrue interest in its worst form. 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. As your interest grows, you may feel like your debt is spiraling out of control. However, effective debt relief focuses on eliminating high-APR debt as quickly as possible.
Alternatives to cash advances
If you’re considering a cash advance, you probably need money today. In a crunch, choose the option that keeps costs down and prevents a debt spiral. Here are a few alternatives to consider:
If you need to pay a bill:
- Call the biller first: Ask for a payment plan, one-time hardship extension, or a due-date move. Many say yes when you ask.
- Employer help: Ask your employer about earned-wage access or a salary advance if offered. Note that this is different from a payday loan, which also carries high interest and risk of growing your debt.
- Small-dollar loan: Find a credit union or community lender that can offer fast funding. This is often cheaper than a credit card advance.
- Overdraft as last resort: Overdrawing from your bank account can be cheaper than a cash advance for one transaction, but fees can stack and repeat. Use once, then fix the shortfall.
If you need physical cash:
- Pawnshop (collateral loan): You risk losing the item, but if you can’t repay, there’s no collection or credit damage. Costs can still be high, so borrow the minimum and set a hard return date to reclaim your item.
- Cash-advance apps offer small amounts, fast. Watch for expedited fees, subscriptions, and “optional tips” that raise the effective cost. Borrow once, repay on your next deposit, and don’t stack apps.
Get relief from credit card debt
What should you do if you have already taken out cash advances and you find yourself in a downward debt spiral? 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, call us today at 1-888-340-4697 and get a free savings estimate.
