Consumers often confuse credit card balance transfers with cash advances, and for good reason.
On the surface, the two products seem to have a lot in common. For starters, they are both offered by credit card issuers.
Secondly, they both may involve receiving much needed cash, even more so now that balance transfer checks are quite common.
But there are glaring differences, which I’ll discuss right this second because cash advances can get you into trouble quick and cost you lots of money.
- Offered by credit card issuers to help you eliminate debt
- Often come with 0% APR for a short period of time, such as 12 months
- Goal is to save money on costly finance charges via a lower interest rate
- Generally viewed as beneficial to consumers
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 existing Chase credit card balance via a credit card balance transfer.
Typically, the offer will come in the form of a 0% APR balance transfer, enough to entice even the most discerning cardholder.
In fact, it’ll probably be set at 0% APR for a certain period of time, usually 12 months or longer.
And the purpose of it is to help you pay down your debt, as opposed to taking on any more.
All in all, they are a positive financial tool that can be used to save money and get out of debt.
- Offered by credit card issuers if you need fast cash
- Can get cash with your credit card via ATM, direct to your checking account, or over-the-counter at certain banks
- Typically come with exorbitant fees and sky-high APRs
- Should be avoided unless most all other options are exhausted and you’re absolutely desperate for cash
A cash advance, on the other hand, is essentially a personal loan that instantly accrues interest.
They can be utilized using a PIN associated with your credit card to get cash from an ATM, via cash advance into your checking account, or over-the-counter cash access at major banks.
While there’s certainly a convenience factor, you pay for it, big time.
Cash advances typically come with a very high variable APR, usually in the mid-20% range, and may be laden with hefty fees as well.
In fact, the APR on a cash advance is usually higher than the interest rate on the most expensive credit cards.
I logged on to one of my credit card issuer’s websites and found that the cash advance APR was 26.99% and the cash advance fee was 5%.
Additionally, the fine print said they begin charging interest on cash advances on the later of the transaction date or the first day of the billing period in which the transaction posts to your account.
In other words, interest begins accruing almost immediately, and at an exorbitant rate. And you’re already in the hole for a 5% fee. Ouch!
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.
For example, when you need money to pay off something else, even if it costs you an arm and a leg in the process.
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.
And once you factor in the cash advance fee, forget about it…
Cash advances are better positioned to be used as a source of cold, hard cash, as the name implies, only when absolutely necessary. And even then, you have to wonder if they’re worth it.
So why the confusion between the two?
- Sometimes the two product names are used interchangeably
- This is partially a result of all the cute names banks give them
- Read the fine print to ensure you’re getting a balance transfer and NOT a cash advance
- Cash advances are generally bad news and a very expensive way to access cash
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) using a paper check.
Additionally, some banks and credit unions may actually refer to a balance transfer as a cash advance even though they aren’t one and the same.
For example, you may come across a balance transfer that has “no cash advance fees.”
In reality, it’s probably a balance transfer but the bank refers to it as a cash advance for some unknown reason.
Be cautious here to ensure you aren’t charged exorbitant fees associated with traditional cash advances.
But also be hopeful the bank is just using a misnomer. It’s a good sign if they aren’t charging any fees.
In almost every case, you’re going to want the balance transfer over the cash advance, unless the situation is super, super desperate and you need cash within minutes.
Even then, it can be disastrous given what the credit card issuers charge for cash advances.
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 very high variable APR, and should be reserved for emergency use only, if that.