Your credit card is a highly useful financial tool that you are probably using to take care of multiple financial liabilities ranging from paying your utility bills to shopping, travel bookings, and a host of other areas. It’s difficult to imagine the handling of daily and monthly expense without the credit card.
Another feature that your credit card offers is the option of cash withdrawal. Using this feature, you can withdraw cash (up to the cash withdrawal limit on your card) using your credit card from ATMs. The amount would be debited from your credit account.
However, there’s a catch involved here. Cash withdrawal using the credit card is rarely a wise option and is hardly recommended. This is primarily due to the extremely high charges which are levied on such cash withdrawals.
Unless the requirement is extremely urgent and there isn’t any other way out, refrain from credit card cash withdrawal for the following reasons.
High interests: Credit card cash withdrawals are usually accompanied by high rates of interests. This interest is usually levied from the very day of cash withdrawal and the accumulated dues would go on increasing if you don’t repay the amount early.
And because the interest is levied from the first day of the withdrawal itself, you don’t enjoy the interest-free (grace period) of up to 50-55 days that you enjoy on other regular transactions using your credit card.
Also, this interest would continue to be levied until the day the withdrawal amount is paid in full.
Transaction fee: Most issuers also charge a transaction fee of 2.5%-3.5% of the withdrawal amount and it would be levied on your subsequent credit card bill. This fee is payable every time you avail the cash advance facility.
Now reward points: One of the primary attractions of using a credit card is its reward points program that allows you to earn reward points by using the card for your financial transactions. The reward points that you earn this way can be redeemed for multiple attractive gifts and benefits.
However, although most transactions qualify for reward points, credit card cash withdrawal is not one of them. You don’t get any reward points on cash advances with your credit card.
A potential impact on your credit score: Although cash advances usually don’t have any direct impact on your credit score, they can indirectly have a negative impact on it. Because all the fees and charges associated with the facility are included in your monthly dues, it may be difficult for you to pay it entirely every month.
If you regularly fail to pay the total dues in the card, it, in turn, may cause your credit card to drop.
A debt trap: Since the cash advance facility makes it possible for you to get some instant cash as and when you want, this is a potential debt trap. Over time, you may acquire this habit of withdrawing cash even when it’s not that necessary and thus your chances of accumulating huge debts are high.
There are also a few advantages of the cash advance facility like the instant cash 24×7 when the need is urgent and zero documentation, formalities, and approval. But after analysing the pros and the cons involved, it’s clear that the disadvantages far outweigh the advantages.
Thus, it’s safe to conclude that you shouldn’t opt for withdrawing cash with your credit card as far as possible. Even if there is a serious need, there are alternatives which you can explore.
Some of the popular alternatives are
Taking a personal loan that has better terms and lower interest rates than the cash advance interests.
Borrowing money from your friends or family members if the need be.
Using your credit card for every transaction that facilitates card payment.
Bottom line: It’s always wise to refrain from withdrawing cash from ATM using your credit card. However, if circumstances are such that it’s the only option you are left with, ensure that you repay the entire sum as early as possible.
Otherwise, the very convenience that the cash advance facility offers can prove to be an unnecessary and a long-term financial burden for you.
Prabhat Gupta: Enthusiastic Finanace Writer and Advisor Get advise for credit card,credit card offers and application
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