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Convenience Can Be Costly - Understanding Cash Advances
By: James Dimmitt
You’ve just opened your credit card bill and attached to your statement you find
a “convenience check” included. It may already be filled out with a dollar
amount such as $300, $500, or even $1,000. Your mind fills with ideas of what
you could buy with this “instant” money. A new summer wardrobe, a nice dinner
and tickets to a concert, a weekend getaway.
But before you go off on a shopping spree, you should be aware that your
“convenience check” is nothing more than a cash advance on your credit card.
Cash advances on credit cards carry many extra fees, often overlooked or
misunderstood by consumers.
Here’s a quick look at the types of fees most card issuers charge for a cash
advance:
1) Upfront fee of 2-4% of the amount advanced. On a $1,000 cash advance your fee
will range from $20-$40 in addition to the interest charges.
2) Higher interest rate than on purchases. Many credit card companies charge 18%
or more on cash advances. In addition, most companies apply only a small
percentage of your monthly minimum payment toward the cash advance.
Some require that you pay down the balance on your purchases first before
applying payments to the higher-interest advance. In other words, you’ll be
paying fees and interest on your cash advance for a long time, especially if you
only pay the minimum payment.
3) Cash advances normally carry no grace period. This means interest charges
accrue as soon as you withdraw money or cash the convenience check.
By law your credit card company must disclose any fees associated with a cash
advance. The easiest way to find out what fees are charged is to carefully read
your credit card statement or to call your credit issuer’s toll-free customer
service number and ask questions.
Credit card companies charge these fees for two main reasons. One, to cover the
costs to process this transaction which are often higher than a regular credit
card purchase. And secondly because of the percentage of defaults among credit
advance users. These costs are then passed along to you the consumer in the fees
and interest rates associated with a cash advance.
The next time you are tempted to cash that convenience check or withdraw money
from an ATM using your credit card, be sure you understand the fees and long
term effects of using a credit card cash advance.
About the Author:
© 2005,
www.yourfreecreditreportnow.com Author: James H. Dimmitt James is
editor of “To Your Credit” a FREE weekly newsletter focusing on managing your
personal finances and credit. Subscribe and get a FREE copy of your credit
report when you visit: www.yourfreecreditreportnow.com |
