How to pay off a credit card cash advance

How to pay off a credit card cash advance

No grace period means the cash advance will start collecting interest as soon as you complete the transaction. Unfortunately, this means you’ll have to pay interest on the cash advance even if you pay off all the cash you withdrew when your statement comes.

Not only does interest start accruing immediately, but many credit cards also charge a higher APR on cash advances than they do on payday loans in Henderson purchases and balance transfers. In fact, the APR for a credit card cash advance can easily be 5% to 10% higher than the normal purchase rate.

It’s also worth noting that you won’t earn any kind of credit card rewards on your cash advance. Nor will a credit card cash advance count toward the spending requirement for a sign-up bonus.

Cash advances that aren’t actually cash

We’ve focused mostly on credit card cash advances that involve actively choosing to withdraw cash as a loan from your credit card account. But that’s not the only type of transaction that your credit card may qualify as a cash advance.

Many credit card companies will code certain purchases as a cash advance if they consider the purchase to be a cash-equivalent transaction. This means that you’re purchasing something that acts like cash.

For example, if you use your credit card to make a bet at a casino or race track, your issuer will likely consider that purchase to be a cash advance. Other types of purchases that may be termed as cash-equivalents can include money orders, lottery tickets, traveler’s cheques, cryptocurrency, and certain gift cards.

As we discussed above, a credit card cash advance starts accruing interest — at a high rate — as soon as the transaction hits your account. This means you should repay the cash advance as soon as you possibly can, as in “don’t even wait until your credit card bill comes” soon.

If nothing else, endeavor to make more than your minimum required payment each month as you work to repay your cash advance. Otherwise, you may be collecting interest on that advance for a long time.

You see, your cash advance balance is separate from other balances you carry on your credit card, including your purchase balance and the amount you owe on any balance transfers. The card issuer can apply the minimum payment amount to any of your balances, and it typically chooses the one with the lowest interest rate.

So, making only the minimum payment means the whole of your payment can be applied to reduce your purchase balance — while your more expensive cash advance balance doesn’t decline at all.

If you pay more than the minimum payment, though, the CARD Act — a consumer protection law passed in 2009 — the game changes. Creditors are required to apply any amount in excess of your minimum payment to the balance with the highest interest rate, which is likely to be your cash advance.

When should you get a credit card cash advance?

Generally speaking, the transaction fee, immediate interest, and high APRs associated with a credit card cash advance mean you should avoid them if at all possible. However, in some cases, it may actually be the best option.

For example, if you need a small amount of quick cash and are considering a payday loan, a credit card cash advance may be the better choice. Predatory short-term loans will almost always be more expensive than a credit card cash advance.

And a credit card cash advance is certainly a better choice than being evicted for not paying your rent, or defaulting on another credit account. Additionally, if you’re abroad and you need fast access to cash, taking a credit card cash advance can be a lifesaver.

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