Costly Credit Traps Convenience
Checks
Here's
a quick look at the types of fees most credit card issuers charge for a
cash advance
You've just opened your credit
card bill and attached to your statement you find a "convenience check"
included. It may already be filled out with a dollar amount such as
$300, $500, or even $1,000. Your mind fills with ideas of what you
could buy with this "instant" money. A new summer wardrobe, a nice
dinner and tickets to a concert, a weekend getaway.
But before you go off on a shopping spree, you should be aware that
your "convenience check" is nothing more than a cash advance on your
credit card. Cash advances on credit cards carry many extra fees, often
overlooked or misunderstood by consumers.
Here's a quick look at the types of fees most card issuers charge for a
cash advance:
1) Upfront fee of 2-4% of the amount advanced. On a $1,000 cash advance
your fee will range from $20-$40 in addition to the interest charges.
2) Higher interest rate than on purchases. Many credit card companies
charge 18% or more on cash advances. In addition, most companies apply
only a small percentage of your monthly minimum payment toward the cash
advance.
Some require that you pay down the balance on your purchases first
before applying payments to the higher-interest advance. In other
words, you'll be paying fees and interest on your cash advance for a
long time, especially if you only pay the minimum payment.
3) Cash advances normally carry no grace period. This means interest
charges accrue as soon as you withdraw money or cash the convenience
check.
By law your credit card company must disclose any fees associated with
a cash advance. The easiest way to find out what fees are charged is to
carefully read your credit card statement or to call your credit
issuer's toll-free customer service number and ask questions.
Credit card companies charge these fees for two main reasons. One, to
cover the costs to process this transaction which are often higher than
a regular credit card purchase. And secondly because of the percentage
of defaults among credit advance users. These costs are then passed
along to you the consumer in the fees and interest rates associated
with a cash advance.
The next time you are tempted to cash that convenience check or
withdraw money from an ATM using your credit card, be sure you
understand the fees and long term effects of using a credit card cash
advance.
©
Author: James H. Dimmitt |
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