Balance Transfer vs. Cash Advance

Consumers often confuse balance transfers with cash advances, and for good reason.

The two share some commonalities, especially now that balance transfer checks are quite common.

But there are glaring differences, which I’ll discuss right this second because they can get you into trouble quick.

Balance Transfers

A credit card balance transfer is essentially an offer from one credit card issuer to pay off your existing debt with another credit card issuer.

For example, Citibank may offer to pay off your Chase credit card balance via a balance transfer.

Typically, the offer will come in the form of a 0% APR balance transfer, enough to entice even the most discerning cardholder.

There may be a balance transfer fee associated with the offer, or it may be a no fee balance transfer credit card.

Either way, the balance transfer APR will be relatively low, and more than likely lower than the current APR tied to the debt.

This is, after all, what makes a balance transfer worth your while.

Cash Advances

A cash advance, on the other hand, is essentially a personal loan that instantly accrues interest. Cash advances typically come with a high variable APR, usually in the 20% range, and may be laden with hefty fees. In fact, the APR is usually higher than the interest rate on the most expensive credit cards.

Similar to balance transfers, cash advances can be utilized to pay off debt, but are generally only worthwhile in times of great need, when no other option is available.

When it comes down to it, it probably wouldn’t make a lot of sense to use a cash advance to pay off credit card debt because the APR on the cash advance would likely be higher.

Cash advances are better positioned to be used as a source of cold, hard cash, as the name implies, only when absolutely necessary.

So why the confusion between the two?

Well, balance transfer checks can easily be confused with the so-called “convenience checks” you may receive in the mail from your credit card issuers. You know, the ones that show up in your mailbox on what feels like a daily basis.

The big distinction is that convenience checks are often cash advances, while balance transfer checks are simply more flexible balance transfer offers that give customers the option to get cash or pay off another credit card balance (or any other outstanding loan).

In summary: Balance transfers typically have 0% APR or a low fixed rate, and can be used to pay off expensive debt, while cash advances generally have a high variable APR, and should be reserved for emergency use only.