Smart SpendingSmart Spending

4 dangers of credit card cash advances

A credit card cash advance can be a great tool if you need fast access to cash, but you should make sure you know exactly what you're getting into.

By Credit.com Oct 10, 2013 12:00PM

This post comes from Allison Martin at partner site Credit.com.


Credit.com on MSN MoneyCash advances can offer credit card users a smart and convenient way to quickly obtain cash. However, they can turn out to be a nightmare if you don't fully read the terms and conditions.


Cash machine © Compassionate Eye Foundation/Getty ImagesHere are a few dangers to be aware of if you are considering taking a cash advance.


1. Fees, fees and more fees

Credit card companies promote cash advances as a convenient option to quickly access cash in emergency situations. But transactions of this sort are often accompanied by a convenience fee. In addition, an ATM fee may also apply when cash is withdrawn from an out-of-network unit.


2. Higher interest rates

Another danger of cash advances is the higher interest rate that applies. The annual percentage rate charged for cash advances is usually higher than -- sometimes double -- the percentage assessed for purchases. This generates a substantial amount of revenue for credit card companies as many consumers are not aware of the varying APRs and are under the impression that they are treated in the same manner as everyday purchases.


3. No grace period

Unlike most credit card transactions, cash advances do not offer a grace period before interest starts accruing. Therefore, your balance will start to increase immediately after the transaction is processed.


4. Facilitates poor spending habits

Taking cash advances makes it all too easy to develop poor spending habits. For example, if you really want to buy something from a merchant that only accepts cash and you do not have cash available, it may be tempting to whip out the credit card and head to the nearest ATM to make a withdrawal. (Some institutions even allow you to transfer funds from your credit card to your checking account online.) However, doing so without immediately repaying the balance and corresponding fees can quickly dig you into a mountain of debt, especially if done repeatedly.


Because of these hidden dangers associated with cash advances, it is essential to think twice -- and look for other options -- before using this method to bail you out of an unfavorable financial situation.


More from Credit.com:

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More