Let me start out by saying I’m not advocating the use of cash advances from credit cards. The fees involved are usually highway robbery. Worse yet, if you don’t have the discipline to use a cash advance responsibly, they can lead to digging a hole of debt.

That being said, I understand there could be scenarios where they might be no other option. Here’s how to do a cash advance with a credit card the bad way:

Depending on your credit card, you options for getting a cash advance will include one or more of the following:

• ATM: You set a PIN code on your card and use it at an ATM machine to withdraw money (this is probably the most common way)
• Bank Deposit: This is done over the phone with your card’s customer service. You provide them your checking account information and they do an electronic (ACH) deposit into it, which usually will take one or two business days.
• Cash Access Checks: Sometimes those checks you get in the mail can be written out to yourself, too. When that’s the case it usually means you will be paying the cash advance interest rate.

Why are those ways so bad?

Reason #1: Interest accrues immediately

With regular purchases you have a grace period to pay. If you pay during the grace period you won’t get charged a dime of interest (but if you pay after the interest will be charged going back to date of purchase).

Contrast that to credit card cash advances, where the interest begins from day one, regardless of whether or not you pay it back during the grace period.

Reason #2: Higher interest rate

It’s almost guaranteed that the APR on cash advances is going to be much higher than what it is for purchases and balance transfers. Here’s an example from my Discover card account. But not to pick on Discover… Bank of America, Chase, Citibank, Capital One, US Bank, Wells Fargo, American Express and any other bank you can think of does the exact same thing.

Reason #3: Transaction fees

Banks used to tack on an extra fee of “only” 1% to 2% and now many are charging 3% to 5%. That means if you took an advance of $500 right off the bat you will be charged up to $25 in transaction fees (as well as the immediate accruing interest).

if you just want a small amount, the transaction fee is usually a $10 minimum no matter what… even if you’re just advancing $20! Oh yeah and if you’re doing this through an ATM, expect to get hit with an extra fee from that as well!

Is there a better way?

As you can see, the fees plus the interest makes these outrageously expensive. But there may be a few ways how you can get a cash advance on a credit card and pay less:

Technique #1: Promotional checks that don’t charge higher APRs

As mentioned most of these checks you get in the mail charge a higher fee if you write them to yourself, but once in a while they don’t. Read over their fine print carefully to see how they operate.

Technique #2: Paying the merchant or store via Paypal

Why is it that you need the cash anyway? If it’s because you need to pay an individual or a business that doesn’t accept credit cards, you should plead with them to accept a Paypal payment.

Even though Paypal fees run around 3%, swallowing those will probably be more palatable. If by chance the money is needed for paying rent, there’s a service called WilliamPaid that accepts credit cards for even less than that.

Technique #3: Amazon Payments loophole

Did you know that Amazon has a competing service with Paypal? Never heard of it? Yeah I didn’t either until recently so don’t feel bad.

When you use this Amazon service to send personal payments, you can do so for up to $1,000 per month for free. Even if you’re using a credit card to send the money, they won’t charge you the normal fees if you stay within that amount (if not, the fees are comparable to Paypal).

Conclusion? This backdoor can be used to pay someone using your credit card, up to $1,000, for free. Although I doubt this offer will stick around once the service gets big. They’re probably just taking the hit on the credit card fees for now to grow its popularity.

If your spouse, family member, etc. has one of these accounts they can receive money, but I just want to point that might be violating the credit card co’s rules about circumventing cash advance fees/interest, if you are paying a spouse, etc. So legally, I need to say you should check with them before doing that to make sure it’s allowed.

Technique #4: No interest on purchases

This technique isn’t for getting a cash advance from a credit card, but rather something you might be able to do in lieu of it.

If you have a credit card promotion for 0% on purchases, then you can use that for Paypal, Amazon Payments, etc. and avoid interest charges (even if it will take you more than one billing cycle to pay). Again, just make sure you follow the bank’s rules when doing so.

Written Oct 2011