What happens if I transfer money from my credit card to chequing?

The High Price of Convenience: Transferring Money from Credit Card to Chequing

Need cash fast? Your credit card might seem like a quick solution, offering the alluring prospect of instantly transferring funds to your chequing account. However, before you reach for that option, understand the significant financial implications of a credit card cash advance. While it provides immediate access to money, it’s a costly maneuver that should be approached with extreme caution and only as a last resort.

A credit card cash advance, unlike a regular purchase, doesn’t function like a loan with a grace period. Instead, it’s essentially a short-term, high-interest loan where interest begins accruing the moment the funds hit your chequing account. This means you’ll be paying interest on the borrowed amount from day one, even before your regular credit card payment is due.

The fees associated with cash advances are substantial. Expect to encounter a significant upfront percentage fee (often ranging from 3% to 5% of the withdrawn amount, or even higher) in addition to the already exorbitant interest rate. This interest rate is typically much higher than your card’s standard purchase APR, sometimes even doubling or tripling it. The combination of these fees and high interest can quickly transform a seemingly small cash advance into a hefty debt burden.

Let’s illustrate with an example: Imagine you need $500 and take a cash advance with a 5% fee and a 25% APR. You’ll immediately incur a $25 fee, leaving you with only $475. The 25% APR will then start accruing interest on the full $500, significantly increasing the amount you ultimately need to repay. This escalating debt can quickly spiral out of control if not repaid swiftly.

When is a Cash Advance Justifiable?

While generally inadvisable, there might be extremely rare circumstances where a credit card cash advance could be the only viable option. These situations should be genuine emergencies, such as unexpected medical bills or essential home repairs, where immediate access to funds is critical and other avenues are unavailable.

Crucial Considerations:

• Repayment Plan: Before taking a cash advance, create a detailed repayment plan to ensure you can pay back the principal and accrued interest as quickly as possible. The longer the debt remains outstanding, the more expensive it becomes.
• Alternatives: Always explore alternative solutions first. Consider borrowing from friends or family, seeking a personal loan with a more manageable interest rate, or utilizing a payday loan (although these also carry high fees, they are often transparent about the costs).
• Hidden Fees: Carefully review your credit card agreement for any hidden fees associated with cash advances.

In conclusion, while a credit card cash advance offers immediate access to funds, it’s a financially risky choice. The hefty fees and high interest rates significantly outweigh the convenience unless faced with an unavoidable emergency and a concrete repayment strategy. Always explore alternative financing options first, and only consider a cash advance as a last resort. Remember that borrowing responsibly involves careful planning and a clear understanding of the associated costs.