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By Stephen Sellner | Citizens Bank Staff
A cash advance is when you withdraw money against your credit card limit. Essentially, it allows you to withdraw cash like a debit card. Now, this might seem as easy and harmless as withdrawing cash using your debit card, but it’s not. There are major differences between the two, which is why a cash advance should only be used in case of emergency.
We repeat: Cash advances should only be used in case of emergency.
A cash advance can be completed a few different ways:
Generally speaking, you can withdraw anywhere from $100 to 30% of your credit limit through a cash advance. The amount of cash you request — plus the cash advance fee (more on that below) — will be deducted from your available credit.
Cash advance fees amount to $10 or 3%-6% of the cash advance amount — whichever is greater.
The cash advance fee will be deducted from your credit limit just like the money you’re requesting from the cash advance. That means if you request a $1,000 cash advance and the cash advance fee is 3%, the amount deducted from your available credit line will be $1,030 ($1,000 cash advance + $30 cash advance fee).
And that 30% limit we mentioned before? That includes the cash advance amount and the cash advance fee. So if your credit card has a $5,000 limit, you might think you’re taking out a $1,500 cash advance, when really, you’re only receiving $1,350 of that and the remaining $150 covers the cash advance fee.
The cash advance fee might not be the only one you pay. You could end up paying an ATM fee if you process the cash advance at a different bank’s ATM. Plus, cash advances carry a higher APR than credit cards or loans, which we’ll explain next.
If you must request a cash advance, it’s important to pay off that balance right away. Once again, you should pay off your cash advance balance right away.
A cash advance balance is separate from the one that tracks all your purchases. That’s because your cash advance APR is higher than your credit card’s typical APR, and interest starts accruing right away on cash advances.
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If you must request a cash advance, pay off that balance right away to avoid paying much higher interest fees.
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Generally speaking, cash advances are not a good option. The cash advance fee and high APR make them an expensive way to access cash.
Here’s a list of better ways to access cash when a normal ATM withdrawal isn’t an option:
Cash advances should only be used when it’s an emergency and you’re out of options. Otherwise, there are much more affordable ways to get the cash you need. The sooner you act, the more options you’ll have at your disposal.
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