What purchases are considered cash advances on credit cards?

Cash Advances: More Than Just ATM Withdrawals

When it comes to credit cards, understanding what constitutes a cash advance is crucial. While ATM withdrawals are a common form of cash advance, they are not the only type. Credit card issuers have devised various transactions that provide immediate cash access, each with its own set of fees and interest rates.

Forms of Cash Advances

In addition to ATM withdrawals, the following actions are classified as cash advances:

• Specific Bill Payments: Certain credit cards allow cardholders to pay bills directly using their credit card. However, these transactions are often treated as cash advances, resulting in fees and higher interest rates.
• Money Orders: Obtaining money orders with a credit card triggers cash advance fees and rates. This practice should be avoided as it provides no additional benefits compared to cash or check payments.
• Overdraft Fees: If your checking account is overdrawn, some credit card issuers may allow you to cover the overdraft using your credit card. However, this convenience comes at a cost, as overdraft fees are typically converted into cash advances.

Fees and Interest Rates

Cash advances typically incur two types of charges:

• Transaction Fees: Fees are typically a flat amount or a percentage of the cash advance, usually ranging from 3% to 5%.
• Interest Rates: Cash advances often carry higher interest rates than regular credit card purchases, resulting in more interest paid over time.

Alternatives to Cash Advances

Consider the following alternatives to cash advances:

• Personal Loan: If you need a larger amount of cash, consider applying for a personal loan. While interest rates may vary, they are generally lower than cash advance rates.
• Credit Card Balance Transfer: Transferring your credit card balance to a card with a lower interest rate can save you money on interest. However, balance transfers may also incur a fee.
• Home Equity Loan: Homeowners can access cash by borrowing against the equity in their home. Interest rates are typically lower than credit cards, but you risk losing your home if you default on the loan.

Conclusion

Understanding cash advances and their associated fees is essential for responsible credit card usage. While ATM withdrawals are an obvious form of cash advance, there are various other transactions that fall under this category, including bill payments, money orders, and overdraft fees. By being aware of these actions and their consequences, cardholders can avoid unnecessary charges and high interest rates.