When money is tight, credit cards sometimes seem like they are a knight in shining armor riding in to rescue us. Credit cards serve the purpose of extending a certain line of credit to us so we do not have to pay cash at that moment. Cashing out or getting a cash advance on a credit card might appear to be the answer in some situations.
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Carrying cash is not always recommended. It can lead to mugging, robberies, or you could just simply lose it somewhere between home and the grocery store. However, there are times when we need the cold hard green paper, cash.
Getting Cash from My Credit Card
Most credit cards offer the option of getting cash or using your line of credit. When you cash out your credit card, you are simply using a different type of credit. After receiving your credit card initially, you should have received an accompanying PIN (personal identification number) specifically for that credit card.
Your PIN is the key to getting cash on your credit card.
Take the credit card and the PIN to an ATM that is compatible with that particular credit card. Select how much money you would like, and presto! Out comes your cash. You can also go to your bank and cash out the credit card in person. This has the same concept of a debit card. Instead of needing the funds available at that moment of withdrawal, it will show up on your next billing statement.
Consequences of Cashing Out a Credit Card
As a set rule in the financial world, nothing is free. Be prepared to see a breakdown of each charge associated with that transaction.
The credit card company will charge you for cashing out the credit card. There are flat transaction fees, processing fees, and a myriad of other fees that they could tack on to your ending balance. Moreover, be prepared for the ATM charges as well.
Cashing out your credit card will usually have a higher interest rate than if you had just used the credit card for credit purposes. These can sometimes be extremely high, so check with your credit card company before using your card for cash. The interest rate is typically five to ten percent higher than your regular interest rate.
Some credit card companies do not offer a grace period for cash advances. Therefore, you start accruing interest from the moment you cash out on your credit card.
Avoiding Extra Fees
Often times, credit card companies have special promotions where they offer no or lower cashing out fees. These might be beneficial to you by helping you curb some of the costs that accompany these types of transactions.
The credit card issuer will definitely assess the cash advance transaction fee. Check with your credit card issuer if they do indeed offer a grace period for cashing out. If they do, you are ahead of the game.
To avoid paying those high interest rates that will be charged to you, make sure to pay the balance in full at the end of your billing cycle. You will be surprised at how much you can save by paying the bill down each month and avoiding a carry-over balance.
Cash Out Your Credit Card vs. Just Using it for Credit
There is no easy answer. According to the Federal Trade Commission (FTC), a good approach to minimizing the cost of all of these fees is to limit your debit and credit card spending, including cashing out.
Use your cards sparingly, and keep track of what you are using them for.
Because identity theft is so prominent, some people use their credit cards to pay for all of their monthly expenses and then use their debit card to pay the balance off in full at the end of the month. This will help to minimize the exposure of their debit card information.
The FTC also gives you the rundown on what can happen if your credit cards are stolen. A thief could obtain your PIN and cash out your credit card before you even knew it was missing. However, you can only be held liable for $50 of those stolen purchases.
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