Drawbacks of a credit card cash advance
Credit card cash advances have three significant drawbacks:
- They have extra cash advance fees. These fees are typically 5% of the transaction amount with a minimum of $10.
- They have high interest rates. Most credit cards have a separate APR (interest rate) specifically for cash advances. The cash advance APR is almost always higher than the purchase APR, with many cards charging about 29.99%.
- Interest charges start immediately. While purchases have a grace period before accruing interest, cash advances don't. The card company will start charging you interest right away.
To put this all into perspective, let's break down the typical costs of a $1,000 cash advance. The fee would cost you $50 right off the bat. There's also the immediate interest charges. With a 29.99% APR, one month would add about $25 in interest.
That's a total of $75 in fees and interest, assuming you pay off the cash advance in a month. If you need more time, that cash advance APR will keep costing you more.
Cash advances may be your best option in emergencies. They're certainly better than borrowing money from a predatory lender, such as a payday lender that charges extremely high interest rates.
But before you go with this option, it's worth seeing if any alternatives work for your situation. There are apps that offer a free cash advance with no credit check. Or, you could potentially get money from your credit card without paying cash advance fees and interest.
Other ways to get cash from your credit card
Depending on what you need the money for, it might be possible to get cash from your credit card and have it processed as a purchase, not a cash advance. Here are the best ways to do this.
Buy prepaid gift cards
A popular method is to use a credit card to buy a prepaid gift card, and then use the prepaid card to buy a money order. Some websites and stores sell these cards for a small fee, such as $5.95 for a $500 gift card.
The tricky part is buying the money order. Not every merchant will let you purchase a money order with a prepaid card, but some major retailers and grocery stores do. Once you have the money order, you can make yourself the recipient and convert it to cash.
For an example of how this works, imagine you use your credit card to buy a $500 prepaid gift card. With the fee, it costs you $505.95. After that, you buy a money order, which costs about $1.
You end up with $499, and all it took was one purchase of $505.95. That's a small price to pay, and since it was a purchase, you don't get charged the cash advance APR. With rewards credit cards, it can even be possible to break even or come out ahead on fees because of the rewards earned on the purchase.
Send money with a payments app in exchange for cash
Several of the top payments apps let you send money to family and friends with a credit card for a fee, which is usually 3% of the transaction. You can do this with the following apps:
If you know somebody who doesn't mind helping you out, you could pay them through an app and ask them to withdraw the money for you. For example, you send your best friend $300 through Venmo, and then they withdraw $300 from their bank account to pay you back. With a 3% credit card fee, this would cost you $9.
This technically isn't how these payment apps are supposed to be used, as they're not intended for cash advances. But it's unlikely to be an issue when you're sending money to someone you know first, especially if it's a one-time thing.
Pay bills with Plastiq
Plastiq is a service that lets you pay almost any bill using your credit card. How it works is simple:
- On the Plastiq website, you provide the recipient information and the amount you're paying them.
- You can pay by credit card for a 2.9% fee.
- Plastiq then sends the money to the recipient as a check or an ACH transfer, depending on what you choose.
- You can also have Plastiq wire the money, although that has an additional fee.
While Plastiq doesn't let you send money to yourself, you can use it to cover bills that don't accept credit card payments. Many people use it to make their rent or mortgage payments this way.
There are a couple of things to know about Plastiq:
- It accepts Visa, Mastercard, and Discover credit cards. It doesn't accept American Express cards.
- It went through financial troubles and filed for bankruptcy on May 24, 2023. However, it has continued working, and it was acquired by Priority Technology Holdings on Aug. 1, 2023.
Even though credit cards aren't intended to be a way to get cash, you can use them like this in a pinch. Whichever method you choose, make sure you only borrow as much as you need, and aim to pay it back as quickly as possible.
