Cash Advance Is Convenient For The Credit Card Company Not You |
|
Among the pleasures of handling all your
finances online is that no longer will you have to handle the irritating cash advance and balance transfer checks that are neatly enclosed with your paper statements. Most people are familiar with them. The credit card companies promote checks as the opportunity to get the fancy outdoor Jacuzzi of your dreams or to pay off your debts. When dealing with credit card companies it helps to follow a basic rule that any attempt to convince you is sure to involve more money for them and not you. This includes convenience checks and cash advance offers as well. The convenience of convenience checks and cash advance benefits only the credit card company and not you. Your credit card company will shower you with convenience checks as a means of making even more money out of you. In technical terms, convenience checks are really balance transfer checks. Cash advance refers to the money you withdraw from an ATM with your credit card. But the basic principle remains the same. What's wrong with using convenience checks or taking a cash advance at an ATM? The problem lies in the fine print. Different interest rates are levied by credit card companies on each kind of transaction. A close scrutiny of your statement will reveal three different types of interest, one for every purchase, cash advance and balance transfers. It is typical for interest rates of cash advance and balance transfer to be higher by a number of points. There are two main implications of multiple interest rates. For starters, the changing rates indicate a lot more interest for cash advance and balance transfer. Almost all the time the grace period on your credit cards is not extended to cover cash advance and balance transfer but only for purchases. No grace period means you'll be charged interest right from the day of the transaction. For another, credit card companies subject your payments to the sub-balances with the lowest interest rates initially. Sub balances with higher rates collect untouched interest before the lower rate sub-balances are paid off. Doing so increases the interest you need to pay to the maximum and in direct contrast to your likely attempts at getting out of debt. With your credit card's purchase interest rate being 10% for example and the cash advance interest rate, 15%. With purchase balance being $1,000, you take cash advance of $1,000. Your entire monthly payment will then go toward the purchase balance at only 10% cost, while your cash advance balance collects interest at 15%. The cash advance rate exceeds the purchase rate. Convenience checks mostly offer special promotion rates, even without interest at times. It may sound tempting but then the balance transfer rate could be less than the purchase rate. Suppose you take advantage of a promotional offer, with a 0% convenience check offer. You want to use one of the checks to have a new pool in your backyard installed. Then you continue using your credit card to make purchases. The credit card company will use your payments for the sub-balance carrying the lowest interest rate. Here your entire monthly payment goes to your 0% convenience check loan, even as the interest on your regular purchases collects at 10%. Due to the length of time you require to pay off your pool, despite being 0%, for your regular daily purchases to cost thousands of dollars in interest. Eventually you'll find that you've paid more interest than necessary. Smart alternative to convenience checks and cash advances More convenience than that of the supposed convenience checks of your credit cards is cold hard cash in a savings account. Rather than buying now and paying later with credit cards, it is advisable to keep some money aside in a savings account for large purchases. Apart from being able to save a significant portion of interest, you'll even actually earn interest. Saving money is easier than it seems. A few moments are all it takes to start a savings account online. Therefore the next time you feel the need for cash advance, use your savings account instead of your credit card. |
