| Curtis Arnold is the founder of
CardRatings.com.
CardRatings.com
offers a consumer report of US credit cards and instant online approvals. Named
among the 'Web's Best Sites' by SmartComputing magazine! The site is courtesy of
Citizens for Fair Credit Card Terms, Inc. |
Credit
card cash advances can provide consumers with convenient and instant
access to "cold cash" in times of financial need, but cash
advances should be avoided if at all possible. Informed consumers
realize that cash advances are typically accompanied by fees and
exorbitant interest rates (there is also no grace
period for cash advances). Moreover, cash advances can be a
major stumbling block for consumers seeking debt
relief. We hope the following tips help consumers avoid the
pitfalls associated with cash advances.
* Fees for cash advances vary, but
fees can be very costly. Fees are computed using two calculation
methods. Many card issuers calculate fees on a percentage basis,
which typically ranges from 1% to 4%. Other issuers charge
"flat fees" for advances. "Flat fees" are not
based on the amount of the advance and, therefore, are always the
same.
An increasing trend is
to combine both calculation methods. Combining calculation methods
results in higher cash advance fees. An example of this would be an
issuer that charges x% for an advance, but charges a minimum of $10
regardless of the amount of the advance. Another example would be an
issuer that charges x% for an advance or $20, whichever is greater.
Read the terms of your card agreement carefully. Fee calculation can
get tricky.
A few issuers do not
charge any fees at all. This is very rare, though. One such issuer
is Pulaski Bank (featured card), located in Little Rock, Arkansas.
Finally, if you must get
an advance, avoid using ATM machines. ATMs charge an additional fee
for advances. This fee is charged by the financial institution that
owns the ATM.
* Often the greatest potential pitfall
for consumers who decide to get a cash advance involves finance or
interest charges. The interest rate for cash advances is often
several points higher than the normal purchase interest rate (the
rate that is associated with everyday card purchases). Cash
advance rates normally range from 20% to 25%. In contrast, the
average purchase rate for a standard credit card ranges from
12.75% to 13.47%. However, a few issuers charge the same rate for
both purchases and cash advances (see our Low
Credit Card Rate Report for more info.).
Other finance charge
pitfalls involve grace periods and the payment method that a card
issuer utilizes. Cash advances begin accruing interest immediately
and, therefore, are not subject to a grace
period. Thus, even if you pay your card balance in full when
your bill arrives, you will still be accessed a finance charge for
any advances. A similar pitfall involves the manner in which
payments are applied to your account. Most issuers apply payments to
card purchases before they apply payments to cash advances (i.e.
payments are first applied to purchases). If you carry a balance on
your card, this can result in a dramatic increase in your finance
charges and overall interest rate.
* Please be aware that
any "credit card checks" that you receive in the mail are
usually treated as cash advances! Card issuers often tout such
checks as an easy way to pay off the bill of your choice or to
acquire some extra spending money. While using a check may be
convenient, it can be extremely costly. Many balance transfers are
also treated as cash advances.
* Dependency on cash
advances can be an outward sign of serious debt problems. Consumers
that regularly rely on advances to "make ends meet"
urgently need debt counseling. Cash advances are so tempting that
some cardholders fall victim to the "cash advance trap"
and find themselves caught in a vicious cycle. If this statement
applies to you or someone you know, please consult our Debt
Relief section for a list of helpful resources.
--End--
| 
