Credit card cash advances: 5 things you should know before you hit the ATM

With the cash advance feature of your credit card, you can get money from an ATM or write a check provided by your credit card company. Voila! Instant money!

But instant money isn't free money--even if it feels that way as the crisp bills emerge like magic from the teller machine. In fact, cash advances, as if they weren't already expensive enough, are getting even pricier as credit card companies hike cash advance fees. And credit card rates are far higher than the best savings account rates or cd rates around!  Not to mention, using cash advances too much is a sure way to get mired in credit card debt if you're not careful. Here are five things to keep in mind before you take your credit card to the ATM.

Different Credit Card Rates

1. The annual percentage rate (APR) may be higher for cash advances than for purchases. That means you'll pay more for that cash than you would pay for using your credit card to buy something. Read your credit card terms--the fine print of your credit card agreement--to confirm the APR for cash advances.

Credit Card Fee for Cash

2. In addition to the higher interest rate on cash advances, you will probably pay a fee to get the cash. Is that money really worth the fee?

Know Your Credit Card Limits

3. There may be a separate limit on cash advances from your credit limit, such as a certain dollar amount in cash you can get per week or a percentage of your credit limit.

Credit Card Terms: How are Payments Credited?

4. When you make a payment, your credit card company might apply it to purchases first, and then to cash advances. Why worry about that? If the interest rate is higher on cash advances, and you don't pay your bill in full, that means you'll pay more interest on your balance than if it comprised only purchases. (Update:  This practice ended in February 2010 when the Credit Card Accountability, Responsibility and Disclosure Act goes into effect. Among other things, the new law will require credit card companies to apply payments to the balances with the highest interest rate first.)

No Grace Period

5. Unlike with new purchases, there is usually no grace period for cash advances. The grace period is the number of days the credit card company gives you to pay your bill in full before you pay a finance charge. With cash advances, you start paying interest right away.

If used sparingly and with discipline, cash advances can be a convenient way to get out of a pinch. But if you rely on them frequently, it's time to review and get your finances in order.

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