Can I withdraw extra money from credit card?

Should You Treat Your Credit Card Like an ATM? Think Twice Before Cashing Out

Credit cards offer convenient purchasing power, but using them for cash withdrawals – essentially treating them like debit cards at an ATM – can quickly become a costly affair. While you can typically withdraw cash from a credit card, it’s rarely a financially sound decision. Understanding the implications involved is crucial before heading to the nearest ATM.

Unlike debit cards, which draw directly from your bank account, credit card cash advances are essentially loans. You’re borrowing money from the credit card issuer, and this type of borrowing comes with a hefty price tag. Here’s why tapping your credit card for cash should be a last resort:

• Upfront Fees: Expect to pay a cash advance fee, often a percentage of the amount withdrawn (typically 3-5%) or a minimum flat fee, whichever is higher. This fee is added directly to your credit card balance.
• High APR: Interest rates on cash advances are usually significantly higher than the standard purchase APR on your card. This higher rate starts accruing immediately, meaning there’s no grace period like you might have for purchases.
• Compounding Interest: The combination of upfront fees and high APR means the interest quickly compounds, adding up significantly over time. Even a small cash advance can snowball into a substantial debt burden if not repaid promptly.
• Credit Score Impact: While a single cash advance might not significantly impact your credit score, frequent cash withdrawals can signal financial distress to credit bureaus. Additionally, a higher credit utilization ratio (the amount of credit you’re using compared to your available credit) resulting from carrying a large cash advance balance can negatively affect your score.

Alternatives to Consider:

Before resorting to a credit card cash advance, consider these alternatives:

• Personal loan: A personal loan often offers a lower interest rate than a cash advance, especially if you have good credit.
• Borrowing from family or friends: While this can be a sensitive topic, it can be a less expensive option than a cash advance.
• Negotiating a payment plan: If you’re facing unexpected expenses, consider contacting the vendor or service provider to discuss a possible payment plan.
• Building an emergency fund: Having a dedicated emergency fund can provide a financial cushion for unexpected costs and eliminate the need for high-interest cash advances.

The Bottom Line:

While withdrawing cash from a credit card might seem like a quick fix in a pinch, the associated fees and high interest rates make it a generally unfavorable option. Exploring alternative solutions and building a strong financial foundation are far more effective strategies for managing unexpected expenses. Only consider a credit card cash advance as an absolute last resort, and be prepared for the financial implications.