It might seem like a quick fix, but withdrawing cash from your credit card, known as a cash advance, comes with significant drawbacks. While Can You Withdraw Money From Credit Card is a straightforward question with a “yes” answer, it’s crucial to understand the high costs and potential risks involved before you decide to do so. Experts generally advise against relying on credit card cash advances due to their expensive nature and negative impact on your financial health.
Why Credit Card Cash Advances Are a Costly Option
The primary reason financial experts discourage cash advances is their high cost. Unlike typical credit card purchases, cash advances are treated less favorably by credit card issuers. This translates to a variety of fees and higher interest rates that can quickly accumulate, making it a very expensive way to access funds.
One of the major expenses is the cash advance fee. This is a one-time charge levied as a percentage of the withdrawn amount, typically ranging from 3% to 5%. Adding to this, if you use an ATM to withdraw the cash, you’ll likely incur an ATM fee on top of the cash advance fee.
However, the cost doesn’t stop there. Credit card cash advances also come with significantly higher Annual Percentage Rates (APRs) compared to regular purchases. Furthermore, unlike purchases which often have a grace period before interest accrues, interest on cash advances starts accruing immediately from the moment of withdrawal. This means there’s no interest-free period, and the high APR kicks in right away, causing the debt to grow rapidly.
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% (Terms apply). Similarly, the Capital One QuicksilverOne Cash Rewards Credit Card, suitable for those with fair credit, has a purchase APR that is the same as its cash advance APR: 29.74% variable. These examples highlight that cash advances are consistently more expensive than standard credit card transactions.
How Cash Advances Can Affect Your Credit Score
Beyond the immediate costs, using cash advances can also negatively impact your credit score. While cash advances themselves aren’t directly reported as a separate item on your credit report, they significantly influence your credit utilization ratio. This ratio is the amount of credit you’re using compared to your total available credit, and it’s a critical factor in credit score calculations.
When you take out a cash advance, you’re increasing your credit utilization. If this causes your utilization rate to rise significantly, especially above the recommended 30% threshold, it signals to lenders that you might be over-reliant on credit. This perceived increased risk can lead to a drop in your credit score. A lower credit score can then affect your ability to secure loans or favorable interest rates in the future, creating a long-term financial disadvantage.
In Conclusion: Rethink Before You Withdraw
While can you withdraw money from credit card is technically possible, it’s rarely a financially sound decision. The combination of upfront fees, high interest rates that start immediately, and the potential negative impact on your credit score makes cash advances a very expensive and risky way to access cash. Before considering this option, explore alternative solutions like personal loans, lines of credit, or even exploring options to access funds from your checking or savings accounts. Understanding the true cost of cash advances is the first step in making responsible financial choices.
For rates and fees of the Blue Cash Preferred® Card from American Express, click here.
