Most credit card companies offer the option of cash withdrawals. The way that this option is billed and the interest rates which are applied need to be understood before the card user advances any money. This option should be utilized as a last resort because it is generally a bad idea.

Cash withdrawals can be defined as cash being withdrawn in the form of ATM machine withdrawals, credit card cheques, gambling payments, and taking extra money on top of a purchase.

Why you should avoid cash withdrawals

The following reasons need to be considered before performing a cash withdrawal with a credit card.

  • There is no grace period for cash advances. Interest begins to accrue as soon as the money is dispensed from the machine.
  • The interest rate is much higher than the normal card rate. It can be as much as 32%.
  • Additional fees are attached to the card for using this option.
  • When using the cash advance option abroad there will be a foreign exchange rate fee in addition to the ATM; which is on top of the substantial interest rate that the card charges.
  • The card holder should also be aware of the fact that the available amount that can be advanced is going to be much lower in regards to the available balance. The card holder’s credit rating as well as the card holder’s history of on time payments will determine the amount of the cash advance that can be taken.

The only transparent feature of the cash advance is that merchant fees are not charged whereas they are for normal credit card purchases.

All in all it is much more prudent for the card holder to either use cash in hand or a debit card for purchases and especially cash withdrawals. In the event that a credit card is the only available option then whatever purchases are necessary should be charged, but every option should first be exercised before advancing cash from a credit card. With all of the hidden fees and extravagant interest rates that are incurred from cash withdrawals, the card holder can and will quickly find financial difficulties when the next monthly statement arrives.