Yes, you can use a credit card at an ATM to withdraw cash, but it might not be your best solution. There are more disadvantages than benefits to withdrawing cash from your credit card that can impact your credit and cost you more in the long-run.
If you’re in a situation like this, you may want to look into how much credit repair costs, as this decision can indicate you need some help avoiding future predicaments like this.
Credit Card Cash Advance
The majority of credit card companies allow you to take out cash using your credit card, and this transaction is called a ‘cash advance.’ Unlike taking out cash from your debit card, checking, or saving accounts, this cash advance is considered a short-term loan, which can make it more expensive than you’d think.
You’re probably familiar with ATM fees when you withdraw money from your checking or savings accounts. These fees skyrocket when you withdraw from a line of credit, i.e., your credit card.
This means that in addition to paying back the cash you owe, you’ll also be responsible for the ATM fees, additional fees, and interest fees, as well. These fees tend to be substantial, and these types of loans can impact your credit, similarly to how refinancing hurts your credit in the short-term.
Factors to Consider Before Taking a Cash Advance
We don’t recommend relying on a cash-advance via your credit card for a multitude of reasons, and here’s why:
Interest Rates
As we mentioned above, withdrawing cash from your credit card comes with some hefty interest rates. You likely know your credit card already has an interest rate on the money you owe, but this interest rate increases when you use your credit card for cash advances as opposed to standard purchases.
The majority of credit card companies don’t offer grace periods for cash advances. This means you aren’t given any time to pay off your balance before your interest begins to accrue. Interest begins accruing the same day you make your cash advance withdrawal. If you don’t pay off the balance promptly, you’re likely to find yourself in a worse financial situation than you were in before.
One-Time Cash Advance Fees
Any time you withdraw money from an ATM using a credit card, your credit card company charges you a one-time fee. This is sometimes a percentage and sometimes a flat rate, but it will always be detailed in your card’s terms and conditions. We recommend reviewing your terms and conditions before making a cash advance withdrawal, as these figures can be higher than the standard withdrawal amount.
Credit Score Impact
A singular cash advance can negatively impact your credit score if you don’t pay it off right away. Remember that interest accrues from the moment you take out your cash advance, causing your available credit to lower rapidly and your credit utilization ratio to skyrocket. This results in a drop in your credit score, which can impact your ability to open future credit cards, receive loan approvals, or apply for housing.
Other Options
Exhaust all other options before opting for a cash advance via credit card ATM withdrawal. These other options are more financially secure or easier to recover from than taking a cash advance from a credit account:
- Use a debit card: If you have the funds in your checking account, use your bank’s debit card at an ATM within your bank’s network. Most of the time, these withdrawals do not incur additional fees and never accrue interest.
- Use a payment app: There are some risks with using Venmo or Cash App to complete transactions (for example, Cash App doesn’t allow you to dispute charges and Venmo users have expressed this process is difficult, as well), but if you’re in a pinch, many individuals and businesses accept payment this way. They will even accept credit card transfers for a small fee. This fee is less expensive than the fees and interest tied to a cash advance.
- Borrow money from someone: This is a more complicated option, because it’s contingent on your relationship to the person you’re borrowing money from. There are risks attributed to borrowing money from loved ones, but you can negotiate a payment plan with them and potentially avoid fees and interest.
- Apply for a personal loan: If you need the cash for a larger expense, such as rent or unexpected bills (car issues, medical bills, etc), consider applying for a personal loan. These loans have lower interest rates than cash advances.
Is It Too Late?
If you’ve already taken out your cash advance with a credit card and are overwhelmed, don’t worry–we’ve got you covered. At The Phenix Group, our dedicated team of experts provide you with a personalized credit repair plan to help you recover from financial hard times.
For more insights on managing your budget or how to check your business credit, check out our latest posts or contact us today!