It’s a common question for credit card holders: Can You Take Money Off A Credit Card? The simple answer is yes, you can. This is known as a credit card cash advance. While it might seem like a convenient way to access funds, especially in emergencies, it’s crucial to understand the implications before you decide to withdraw cash from your credit card. Experts generally advise against relying on cash advances due to their significant drawbacks. Let’s delve into why taking money off a credit card as a cash advance is often a costly financial move.
What is a Credit Card Cash Advance?
A credit card cash advance is essentially a short-term loan from your credit card issuer. Instead of using your card to make a purchase, you’re using it to get cash. You can typically do this at an ATM, bank, or sometimes even through convenience checks linked to your credit card account. Think of it as borrowing money against your credit line, much like using your credit card for any other transaction, but with significantly different terms and consequences.
The High Cost of Credit Card Cash Advances
The primary reason financial experts discourage cash advances is their high cost. When you take money off a credit card in this way, you’re entering a realm of fees and interest charges that are far more burdensome than typical credit card purchases.
Fees and Interest Charges Accumulate Quickly
Unlike regular credit card purchases, cash advances often come with immediate fees. These can include:
- Cash Advance Fee: A percentage of the withdrawn amount, typically ranging from 3% to 5%. For example, a $500 cash advance could incur a fee of $15 to $25 upfront.
- ATM or Bank Fees: Depending on where you withdraw the cash, you might also be charged a fee by the ATM operator or bank.
These upfront fees are just the beginning. The most significant cost comes from the interest charges.
No Grace Period for Cash Advances
A crucial difference between purchases and cash advances is the grace period. With purchases, you usually have a grace period – often around 21 days – to pay your balance in full before interest accrues. However, there is no grace period for cash advances. Interest starts accumulating from the moment you withdraw the cash. This means that every day you hold onto that cash advance, the interest charges are adding up.
Higher APRs for Cash Advances
To make matters worse, the Annual Percentage Rate (APR) for cash advances is typically significantly higher than the APR for regular purchases on the same credit card. Credit card companies view cash advances as riskier, and they price them accordingly.
For instance, consider the Blue Cash Preferred® Card from American Express. While it offers a variable APR for purchases ranging from 18.24% to 29.24%, the APR for cash advances jumps to a hefty 29.49% variable (as of the last update of the original article, and it’s important to check current rates as they vary). Similarly, the Capital One QuicksilverOne Cash Rewards Credit Card has a 29.74% variable APR for both purchases and cash advances, highlighting that even on cards with potentially similar purchase and cash advance rates, the lack of grace period makes cash advances far more expensive.
Negative Impact on Your Credit Score
Beyond the immediate costs, taking cash advances can also negatively impact your credit score, indirectly costing you more in the long run.
Increased Credit Utilization Ratio
One of the key factors influencing your credit score is your credit utilization ratio – the amount of credit you’re using compared to your total available credit. Taking a cash advance increases your credit balance, potentially pushing your credit utilization rate higher. A high credit utilization rate can signal to lenders that you are overly reliant on credit, making you appear as a higher-risk borrower.
Signaling Financial Strain
While cash advances themselves aren’t specifically listed on your credit report as separate items, the increased credit utilization they cause can raise red flags. Lenders might interpret a high credit utilization, especially if it’s coupled with frequent cash advances, as a sign of financial distress. This can negatively affect your creditworthiness, making it harder to get approved for loans or other credit products in the future, or resulting in less favorable terms like higher interest rates.
Alternatives to Credit Card Cash Advances
Given the high costs and potential credit score damage, it’s generally best to avoid taking money off your credit card as a cash advance unless it’s a true emergency and you have no other options. Consider exploring these alternatives first:
- Personal Loans: Often offer lower interest rates and more favorable repayment terms than cash advances.
- Emergency Fund: If you have an emergency fund, this is exactly what it’s for. Using savings is always cheaper than borrowing.
- Balance Transfers (with caution): In some cases, a balance transfer to a card with a lower APR (for purchases, not usually cash advances) might be a better strategy if you need to manage existing debt, but this is not a direct way to get cash.
- Checking Account Overdraft Protection: If you need a small amount of short-term cash, overdraft protection on your checking account might be less expensive than a cash advance, but be mindful of overdraft fees.
Conclusion
While you can take money off a credit card through a cash advance, it’s crucial to recognize the significant costs and potential negative impacts on your credit score. Cash advances are designed as a convenience for dire situations, not as a regular financial tool. Understanding the high fees, immediate interest accrual, and potential credit score risks should make you think twice before using your credit card to withdraw cash. Exploring alternative options is almost always a more financially sound decision.
