Understanding Credit Card Cash Advances: Alternatives and Considerations

Introduction to Credit Card Cash Advances

Many individuals find themselves in situations where they need cash quickly, and one of the most appealing options they consider is a credit card cash advance. However, before diving into the process, it's important to understand the intricacies involved with cash advances and explore alternative solutions.

How Credit Card Cash Advances Work

Contrary to popular belief, a credit card does not contain actual cash. It grants you a credit line provided by your bank. For instance, if your bank offers you a credit line of $5,000, you can borrow or spend up to that amount at the interest rate you agreed upon when applying for the card. The cost of borrowing can be quite high, with interest rates often fluctuating between 20% and 36% annually. This means that if the annual interest rate is 20%, you will incur an extra $1,000 in costs annually. At 30%, the cost jumps to $1,500 annually, and at 36%, the cost climbs to $1,800 annually. As a comparison, a personal loan at 10% interest would only cost $500 annually. Hence, many find it rational to explore alternative methods of obtaining cash without the steep costs associated with a cash advance.

Alternative Methods: Buying a Money Order

A practical workaround for obtaining cash without using a credit card's cash advance option is by purchasing a money order and using your credit card to pay for it. This method allows you to avoid the substantial fees and high-interest rates typically attached to cash advances. In my recent experience, my credit card interest rate was 24.49%, with an additional charge of $5.00 beginning at the time of the transaction. By buying a money order and paying for it with my credit card, I was able to avoid the immediate interest charged on a cash advance.

Firstly, you should check if you can pay for the money order with a debit card. Many establishments will allow this payment method. If a debit card is not an option, you can proceed with a credit card, but make sure to complete the transaction at the register without handing over your card. Nowadays, this is a common practice in many retail establishments.

Practical Steps for Using the Money Order Method

Here’s a step-by-step guide to avoid paying the cash advance fee and interest:

Buy a Money Order: Determine the amount of cash you need and buy a corresponding money order. Use the Credit Card to Pay: Use your credit card to pay for the money order. Make sure to specify that you would like to pay with a credit card rather than the cashier handing it over to them. Cash the Money Order: Cash the money order at a customer service desk. Be prepared to provide identification as most establishments require it before issuing the cash.

This method works well in many places, but it's not a guarantee. Some card issuers or money order outlets may not accept credit cards for purchases. For example, I previously managed to purchase a money order from Albertsons using a Pioneer Federal Savings MasterCard (MC) in 2015. However, attempting to cash the money order at the same location often encountered resistance. To overcome this, you can split the process into two runs.

Some tips to ensure success:

Make the purchase early in the day. Try different locations if possible, as not all card issuers and money order outlets have the same policies. Ask for a quote before attempting the purchase, and be prepared for pushback.

As of my latest attempt, the post office was not a viable option. However, my default location, Albertsons, proved to be successful. You may have a wider range of options in your area, so try various locations and share your experiences with us.

Conclusion

In conclusion, while a credit card cash advance can provide quick access to cash, it comes with steep costs. Exploring alternative methods, such as purchasing a money order with your credit card, can be a more cost-effective solution. By following the steps outlined above, you can avoid the exorbitant fees and interest rates associated with cash advances.