If you don’t have cash on hand, it can be frustrating to walk past an ATM without enough money in your bank account to cover a withdrawal. However, the best credit cards can be used to withdraw cash from an ATM, whether it’s your bank or not. Just like that, you can have money in your pocket.
But don’t hop on the first ATM you see and withdraw cash with your credit card just yet. Called cash advances, these withdrawals are basically borrowing money from your credit card and you have to pay them back, usually with high fees and interest rates.
- How to get a cash advance from a credit card
- Is a cash advance bad for your credit?
- How to avoid certain cash advance fees
How to get a cash advance from a credit card
First you need to verify that your credit card will work in an ATM. You can do this by calling your credit card company or by checking the Cardholder Agreement that came with your card. Look for the sections on “Cash Advance APR” and “Cash Advance Fee,” which are listed with dollar figures or percentages charged and indicate that you can use your card at an ATM.
Your credit card statement may show a cash advance line of credit or a cash advance credit limit, which is the maximum amount of money you can withdraw. The credit limit for cash advances is usually lower than your credit limit for regular purchases.
To use your credit card at an ATM, you will need to find or set the PIN associated with your credit card. You may have received it when the card arrived in the mail. Otherwise, you may need to ask the credit card issuer by logging into your online account or calling the phone number on the card for the bank. Setting up the PIN code can take seven to 10 days.
You may be charged a fee for using an ATM located outside the network linked to the credit card. Check with your credit card provider or bank to find out how much it costs and if you can avoid it.
Is a cash advance bad for your credit?
Short-term problems with cash advances
Fees are the first thing you’ll pay on a cash advance. They are usually based on the amount of money you borrow, such as $10 or 5% of the amount, whichever is greater. This equates to a $10 fee for borrowing up to $200, or 5% of the amount borrowed if over $200.
Up-front interest charges are another reason to avoid cash advances. They don’t have grace periods – like your normal credit card purchases do for about a month – and the credit card company will start charging you interest on a cash advance as soon as you borrow money. silver.
Cash advances have high annual percentage rates (APR) that are much higher than normal purchases. Expect to pay 25% interest on a cash advance, again with no grace period.
Long Term Cash Advance Problems
High interest rates can turn into long-term problems if you don’t repay the cash advance quickly, but there are other problems with cash advances that can follow you for years. First, your credit card company may flag you as a subprime borrower. Creditors consider people who use cash advances to be in desperate need of money, especially if they make a few.
Such risky behavior with your money may prevent you from getting higher credit lines or good terms with the bank that gave you the cash advance. Your credit card interest rate could increase or your account could be closed.
Second, cash advances add to your credit card debt and show up on your credit reports. If you already have high balances on your credit cards compared to your total available credit, a cash advance can reduce it further.
The more credit card debt you have relative to your total available credit — called credit utilization — the more it can hurt your credit score. If you already have high balances on your credit cards, a cash advance can increase your credit utilization rate and flag you as a greater risk to creditors. The higher the credit utilization rate, the greater the risk of default on a credit account within the next two years, according to FICO, a credit reporting company. “Amounts owed” represent 30% of a credit score, and using more than 20% of the credit you have is considered risky.
How to avoid certain cash advance fees
Interest charges on cash advances are unavoidable. However, you can eliminate some fees by using a few options.
If you have a credit card from Discover, it lets you borrow up to $120 in cash at checkout when you buy something. It categorizes the money as a purchase instead of a cash advance, so you’ll avoid bank and transaction fees.
Your regular APR applies to the money you receive and there are no hidden fees, according to Discover. Called “cash over,” Discover limits transactions to $120 every 24 hours with no monthly limit, but your local store may allow less cash to be taken out of the purchase amount and may limit the number of times you can withdraw money.
When withdrawing money from your checking account, if you cannot find an ATM linked to your bank to avoid ATM fees, find a bank that covers ATM fees in other banks. Some brokerage accounts offer free use of ATMs for customers, so it may be worth setting up a brokerage account.
If you’re really short on cash, consider a balance transfer credit card. It lets you transfer a credit card balance and then pay it off without interest charges for a year or more.
However, these cards have drawbacks and fewer credit card companies offer them. Be aware of the terms and fees before upgrading to one.
If you decide to get a credit card cash advance, try to pay it off as soon as possible. Interest will start accumulating immediately, and debt spiraling out of control will only add to your cash flow problems.