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Cash advances: a dangerous game

A cash advance is just what it says: you get cash directly from your credit card, rather than making a purchase with the card. Most cards have a limit associated with a cash advance and conditions and fees apply that are different from a usual credit card purchase. The costs associated with a cash advance are high, and so a cash advance should only be used in extreme situations.

There are times when we all need a cash infusion: unexpected bills is one big reason. And, it's not unreasonable to take advantage of the benefit. But if you're turning to a cash advance on any kind of regular basis, it can be a signal that you're in credit trouble, and you should consider debt counseling.

Here are some things to think about if you're considering a cash advance.

• The interest rate on a cash advance will be several points higher than your credit card's current APR. So, if you're paying 15% on your credit card, don't be surprised if your cash advance costs you 20% or even higher.
  
  
• There is no grace period, Your cash advance will begin to cost you as soon as you put the advance against your credit card. There may also be special fees for the service.
  
  
• “Double” fees often kick in. Your cash advance may cost you up to 4% of the amount you're advancing (so $4 for a $100 advance), but you may also have a minimum flat fee for the service (up to $20 on some cards). Add the higher interest rate, and that $100 advance has cost you a lot of money.
  
  
• When your card statement arrives, you usually have to pay off all your other debt before you can pay down your cash advance. So, if you're in the habit of carrying a monthly balance, a cash advance can really cost.
  
  
• If you're taking the advance from an ATM, you will also have to pay the ATM fee—bumping up the cost of a cash advance even more.

A cash advance can be handy—but be sure you know the very high costs associated with this benefit.

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