What will happen if I withdraw cash from my credit card?

Cash Advance: The Hidden Consequences of Withdrawing Cash from Credit Card

Using a credit card for cash withdrawals may seem convenient, but it comes with repercussions that can impact your financial well-being in the long run. Here are the unforeseen consequences of withdrawing cash from your credit card:

Negative Impact on Credit Utilization Ratio

Credit utilization ratio refers to the percentage of your available credit limit that you’re using. Withdrawing cash from your credit card increases your debt-to-credit limit ratio, even though it’s not directly reflected as a transaction on your credit report. This high utilization ratio can negatively affect your credit score.

Reduced Credit Score

A high debt-to-credit limit ratio can lower your credit score. Creditors prefer to lend to individuals with lower credit utilization ratios, as it indicates financial responsibility and lower risk. A lower credit score can make it more challenging to qualify for loans, credit cards, or other forms of financing in the future.

Higher Interest Rates

Withdrawing cash from a credit card typically comes with high interest rates compared to regular credit card purchases. The interest charges start accruing immediately, further increasing your overall debt. If you carry a cash advance balance for a prolonged period, you may end up paying significantly more in interest.

Additional Fees

Apart from the high interest rates, credit card companies often charge additional fees for cash advances. These fees vary depending on the card issuer but can add up over time, making it even more expensive to withdraw cash on a credit card.

Alternatives to Cash Advance

To avoid the potential negative consequences of cash advance, consider exploring alternative options for accessing cash:

• Personal loan: Personal loans typically offer lower interest rates and flexible repayment terms compared to cash advances.
• Line of credit: A line of credit allows you to borrow funds as needed, with interest only charged on the amount you use.
• Overdraft protection: You can link a checking account to your credit card, which allows you to access cash when your balance is low. However, overdraft fees can be costly.

Withdrawing cash from your credit card can have hidden consequences that can hurt your credit score and make it more expensive to borrow money in the future. It’s advisable to consider alternative options for cash access to avoid these negative impacts.