cash advances

A cash advance from your credit card may be convenient, but it will cost you. 

While you might think an advance is the same as withdrawing money from a debit card, advances are actually loans. They're significantly more expensive than typical credit card purchases, according to a recent CreditCards.com study of 100 popular cards.

"Cash advances are problematic for three reasons: They charge high interest rates around 25%, interest starts accruing immediately, and there's usually an upfront cash advance fee, most commonly $10 or 5%, whichever is higher," said Ted Rossman, an industry analyst at CreditCards.com.

Cash advances are not as expensive or risky as payday loans or car title loans, but they should be reserved for extreme circumstances only, Rossman said. 

Used too often, they can lead to credit card debt. 

"If you're using cash advances frequently, that's expensive and likely indicates deeper financial distress," Rossman said. "I know it's hard to make ends meet, especially during this pandemic, but if you're routinely making cash advances, you probably need to find a way to raise your income or cut your expenses." 

If finances are tight, one solution is to ask a credit card issuer and other lenders for a break, such as skipping a payment with permission, lowering your interest rate or waiving other fees.

"In more normal times, I'd suggest 0% balance transfer cards and personal loans, which are typically unsecured, like credit cards, and can charge interest rates as low as the mid-single digits," Rossman said. "Lenders' risk aversion with unemployment spiking has made these options harder to qualify for, but you might still have a backdoor in via your existing financial relationships." 

Also consider nonprofit credit counseling. Check NFCC.org for recommendations on organizations that can provide advice, consolidate debts and lower interest rates, all for low fees.

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