I get little "convenience" checks every month from my credit card company with messages on how I can get quick cash from my account -- just like an ATM. I've never used them because they carry high fees and charge interest the second they are cashed. Now we know how much more they are overcharging consumers. According to a recent survey by CreditCards.com, the interest charges on these services average 24% and go as high as 36%. That's a huge surcharge for convenience. You can pay these fees in an absolute pinch, but it's going to cost you. Here are some other pitfalls of cash advances:
* Cash advances begin charging interest immediately. This is unlike purchases, which have an interest-free grace period based on billing cycles.
* A typical $1,000 cash advance would cost an additional $69 even if it’s paid in full within 30 days ($50 for the typical 5% fee plus $19 in interest).
* Many people have probably taken a cash advance without knowing it. AS I noted above, the paper “convenience checks” that many credit card issuers send customers in the mail are one prominent example.
* Wire transfers, money orders, legal gambling purchases and bail bonds are also often treated as cash advances if paid via credit card.
* Paying off a high-interest cash advance can take even longer if you already carry a balance, due to the way many card issuers allocate payments.
* As allowed under the federal Credit CARD Act, when multiple balances are present, issuers may allocate the minimum payment to the part of the balance with the lower rate. This allocation method slows the pace at which the high-rate balance is paid off, boosting interest costs.
"Cash advances can be the best of a bunch of really bad options when times get tough," said Matt Schulz, CreditCards.com’s senior industry analyst.
"They're way cheaper than a payday loan and more convenient than a personal loan. Sometimes they might even be cheaper than overdrafting your checking account. But they're definitely something to avoid under normal circumstances."
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What You Can Do Other than avoiding cash advances outright, you have a number of lower-cost options. 1) Your ATM/debit card is almost always a lower-cost option, as long as you stay within your banking network (and don't pay additional fees) and you have plenty of money in your linked account. 2) If you can wait to charge a purchase, do it on a credit card. You won't be charged any interest if you pay off your balance within a grace period, which is usually about a month. 3) Do an electronic funds transfer. Nearly every bank allows you to transfer money from one account to another for free. You can do it online in seconds and I've never been charged for it. 4) My suggestion is to link a checking account to a money-market or savings account. I use the money-market account to pay big bills I know are coming and keep my checking account for monthly/daily bills. "Linking" accounts is free. You can even directly deposit your paycheck into your savings accounts and transfer cash as needed. You won't be paid much interest, but it's better than forking out fees to banks.
