Credit card cash advance is like a debit card withdrawl

the plastic effectUrban Legend Number 15: I frequently use my credit card to take out a cash advance. The cash advance is no different than taking money out of my bank account with an ATM card.

The Reality: False.
Cash advances are actually loans provided to you by your credit card issuer. Cash advance loans include fees and very high compound interest rates. For example, if your APR for purchases for your credit card was 13.24 percent, the APR for cash advances may be 20.24 percent.
The fees for cash advances typically range from 2 to 4 percent …….

…….. difficult for credit card issuers to profit from cash advances on credit cards by limiting the number of fees that can be charged to an account per month, and by requiring banks to apply any monies received over the minimum payment to the portion of the balance with the highest interest rate.

Polly’s Pearls of Wisdom: Cash advances are treated very differently than purchases made with credit cards. When a credit card holder makes purchases, the purchases are accumulated for a billing cycle, which is typically 31 days. If the credit card holder pays off his/her balance in full at the end of the billing cycle, no interest charges are charged to the credit card holder.

What many credit card holders don’t realize is that if they take out a cash advance with their credit card, interest is charged from the moment the cash is received. There is no grace period for interest charges charged on cash advances.

If your credit score is low, the interest rate charged for cash advances could reach the maximum allowed by law.

If you take out a cash advance and cannot pay off your credit card balance in full, you should make sure to pay more than the minimum payment. The CARD Act of 2009 requires credit card issuers to apply any monies received above the minimum payment amount to the portion of the balance being charged the highest interest rate. This will help you to decrease the amount of interest you are paying per month more quickly than if you just make the minimum payment.

Many credit card issuers routinely send credit card holders courtesy checks to make it easy and tempting for a credit card holder to take out a cash advance. Many credit card issuers send these courtesy checks out on a monthly basis.

My advice to you is that when you receive such courtesy checks, immediately walk directly to your shredder and drop them in. You can also call your credit card issuer and request that they stop sending you these courtesy checks. This also removes a potential source of fraud, because the courtesy checks can potentially be stolen from your mailbox.

If you are tempted to withdraw a cash advance using your credit card, carefully consider the situation. A cash advance using your credit card should always be treated as an emergency or last resort type of action. It should never be done for day-to-day or impulse purchases.

Plastic Reactions:

• Did a negative or positive emotion trigger the desire for a cash advance? Identify this emotion and think about how you might have avoided the cash advance and its associated costs if you were able to control this emotional trigger.

• Was it an emergency situation that created your need for a cash advance? Do you have a sound financial plan for emergency situations that may arise in your life?

• If you are in an emergency situation, can you get the money from another source such as a friend, family member, or even your own bank account?

• Do you actually need the cash to make a purchase? If so, you should make the purchase without taking out the cash advance, if possible. If you have reached your available credit limit on purchases, can you delay the purchase until you have the available credit?

• Can you pay the cash advance off at the end of the month?

• Did you realize how much the cash advance would cost you in fees and interest?

• Will you think differently about using cash advances on your credit card in the future after reading this chapter?


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The Arizona Daily Independent has received permission to reprint portions of a timely new book “The Plastic Effect” focused on the urban myths of credit cards and their usage written by Polly A. Bauer, CPCS and Stephen Lesavich, PhD, JD. Future issues of the ADI will feature “Polly’s Pearls” included in each Urban Legend Myth. “The Plastic Effect” is Copyright by Coconut Avenue, Inc. All rights reserved. No unauthorized reproduction or duplication is permitted without written permission of Coconut Avenue, Inc.

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