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So far we’ve talked about what types of cards there are, how credit card companies make their money, how to reduce your payments and the different types of incentives. The next lesson in our Credit Card 101 rundown is to go over that lovely ol’ option we like to call a cash advance.

Think it’s convenient to be able to go to the ATM, pop in your credit card and take out a cash advance against your line of credit?  Think again.  Although it IS convenient, know what you’re getting into before doing so.

First, most credit cards often charge a fee simply for taking a cash advance.  That’s on top of the high interest rates (higher than what your normal APY is for regular purchases).  And also, realize that there is no grace period for cash advances, so interest starts accumulating the second the ATM spits out your money.

You know those convenience checks you keep getting from your credit card company?  Those are usually treated as a cash advance, so stay away from those also.  Your credit card provider will most likely not negotiate fees and rates pertaining to cash advances.  They figure if you’re desperate enough for a cash advance, they have you locked in.

If you do take out a cash advance, there’s something else you must know.  Say you only need the cash for a few days before you get paid, and then you plan on sending a payment to cover the advance on payday.  Banks are clever and they apply that payment first toward your “purchases” portion which obviously carries a lower interest rate.  So if you carry a balance on your credit card, only a small portion of your payment is actually going towards paying off the cash advance balance.  Thus, racking up higher amounts of interest over the period of time it takes to pay off the balance.

So please, think twice (or three times!) before doing a cash advance on your credit card.  It really is a money trap.