If you’ve ever been at the ATM and realized you mistakenly grabbed your credit card and not your ATM or debit card, there’s good news and bad news. The good news is that, in many cases, you’ll be able to get cash using your credit card. The bad news is, you probably don’t want to unless it’s absolutely necessary.
Many credit cards have the option to get cash advances, but they also tend to charge higher interest rates on such advances in addition to an upfront fee. For example, the Chase Freedom credit card charges $10 or 5 percent of the transaction sum — whichever is greater — for each cash advance. This makes them a much pricier option than an ATM.
Keep reading to learn more about this banking fee you should avoid.
What Is a Cash Advance?
Any time you use your credit card, you’re essentially taking out a loan to make a purchase. With a cash advance, you’re just removing the purchase part of that equation and getting the cash directly. That might not make a ton of sense as long as you have cash in your checking account, but plenty of people find themselves in a short-term pinch between paychecks and have no other option.
How to Get Cash from a Credit Card
Your options will likely vary depending on your credit card company and issuer, but the most common methods for getting a cash advance are either through an ATM or a check. Contact your issuer about getting a PIN to use your credit card at an ATM or checks you can use for cash advances.
One notable exception would be the Discover “cash over your purchases” feature available at select retailers with Discover cards. This essentially allows you to get cash directly from the retailer when you make a purchase with your credit card, meaning that — if you pay off the balance in full each month — you can essentially use the card like a fee-free ATM card.
Advantages and Disadvantages of a Cash Advance
The clear advantage of a cash advance is the convenience. Life is often full of unexpected surprises that you’ll need cash to resolve, and having a backup plan for when you need cash can be very helpful.
However, the cost of cash advances means that they should only be treated as a last resort. Cash advances typically come with a higher APR than normal purchases, and that’s on top of the initial fee that can run as high as 5 percent and a potential ATM fee.
All in all, if you have no other option, credit card cash advances can be a valuable convenience to help you bridge a period when you’re low on cash, but they’re a costly alternative that can and should be avoided with better planning and budgeting wherever possible.
Click through to learn about when to use your emergency fund.
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