Watch Out for Big Fees on Credit Card Advances

NEW YORK (MainStreet) — Anyone can get into a cash liquidity jam and need an advance from a credit card company.

Stuff happens, right? It could be a student overseas who needs quick cash to get back to campus from a foreign city, or an emergency with a car several hundred miles from home when there isn't enough money on a card to cover repairs. Whatever the reason, there is no shame in needing a credit card cash advance. Just watch out for the high fees that come with them.

The various forms of advances include wire transfers, money orders, legal gambling purchases, bail bonds and so-called "convenience checks" sent in the mail even though customers don't ask for them.

Fees from all such advances are high. In its survey of 100 card advance policies, CreditCards.com reveals the average interest is 23.53%, which is 8.54% higher than today's average 14.99% purchase APR on traditional credit cards. In addition, 98 of the 100 card payment policies surveyed charge fees for each cash advance — either $10 or 5% of the cash advance amount.  

In real dollar terms, a $1,000 cash advance would cost $69 to pay back within 30 days, with an average $50 fee and $19 in repayable interest. And stay away from First Premier Bank, the BP Visa and Texaco's Visa card — they're at the top of the list of major fee offenders in the survey. (Also, don't count on earning any rewards points on a cash advance. "All major issuers" exclude rewards with card cash advances.)

"I think the worst thing with cash advances is that most consumers don't realize there's no grace period," says Beverly Harzog, a consumer credit analyst and author. "Cash advance APRs are usually much higher than the purchase APR, and this is often another unpleasant surprise. So with a cash advance, you're getting quick cash, but paying a high amount of interest on a total that now includes a transaction fee, which averages 3% to 5%. And the interest clock starts ticking right away."

"This is a slippery slope to debt," Harzog says.

The best way to manage credit card advance fees, obviously, is to never use them. But if you do, take some steps to curb the fees.

Bank of America advises managing transaction fees tightly. "Some transaction fees are a percentage of the overall advance; in that case, you could limit the fee by withdrawing only as much as you need," the bank notes on its website. "Other transaction fees may be a flat rate or a combination of a flat rate and percentage of the transaction. In this case, if you take all the cash you think you'll need at once, instead of making multiple smaller transactions, you only pay the flat fee once."

Keep an eye on your credit score, too — it matters when you take out an advance. "If your credit score is low, the interest rate charged for cash advances could reach the maximum allowed by law," says Stephen Lesavich, co-author of The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards. "If you take out a cash advance and cannot pay off your credit card balance in full, you should make sure to pay more than the minimum payment. The CARD Act of 2009 requires credit card issuers to apply any monies received above the minimum payment amount to the portion of the balance being charged the highest interest rate."

That will help you lower the amount of interest you pay per month more quickly than if you just make the minimum payment, Lesavich adds.

Maybe the best strategy is not to wait until you have to rely on a credit card cash advance and you have no alternative. "Save up some cash to have around a one-month reserve — at minimum — that's sitting in your bank account," advises John Rampton, founder and chief executive of Due.com, an invoicing-services firm.

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