Let’s get this straight – credit cards are not debit cards. They might look like debit cards, feel like debit cards and in many ways work better than debit cards, but there’s one thing debit cards can do that credit cards simply can’t: access your bank account at an ATM.Sure, credit cards will work at an ATM. You can stick them in the card reader, push some buttons and get money. But the process doesn’t work the same as it does with debit cards. When you make a withdrawal at an ATM with a debit card, you’re opening a direct line to your savings or checking account. The money the machine spits out is deducted directly from your reserves, and then you’re free to go on your merry way.
But when you attempt the same transaction with your credit card, the money you receive isn’t your own – it’s your creditor’s. This type of withdrawal is called a cash advance. It works a lot like a short-term loan, and like most short-term loans, it should be avoided at all costs. Here’s why:
- Cash Advances Have Special Regulations. Although credit cards will advertise one interest rate for “regular purchases,” they’ll almost always have a special APR and fee schedule reserved for cash advances. Typically, the interest rate on any cash advance will be 4-10% higher than it is for other purchases, which is bad news if you’re stuck in revolving debt. On top of that, the cash advances on your bill aren’t subject to the grace period that other purchases are, so you’ll start racking up penalty fees and interest the first day that you’re late with a payment.
- There Are Fees Up Front. In addition to the extra interest you’ll be paying for cash advances on your balance, every time you make an ATM withdrawal with a credit card you’ll be subject to a number of fees and penalties. Your card issuer will typically charge around 3% of your total withdrawal as a transaction fee, and the ATM itself will add on an additional charge for feeding it something other than a debit card. Although these fees don’t add up to much, especially if you need cash for an emergency, credit card cash advances are still a bad idea because…
- There are Better Ways to Get Cash With Your Card. Grocery stores, pharmacies and gas stations are just a few of the retailers that typically offer cash back with purchases. You can buy something cheap like a soda or a pack of gum and get cash back. It’ll count as a standard purchase on your balance and will cost you a lot less in transaction fees. If you’re in dire straits and need to find cash fast, you should check with one of these stores before resorting to the ATM.
As is typical of most “advance” loans, credit card cash advances are subject to higher penalties and fees because card issuers know that most consumers who use their credit cards at an ATM either don’t know what they’re getting into or are too desperate for cash to really care. But if you look around for a store that allows cash back with purchases, you’ll be able to get the money you need without the hassle or the cost.
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