The hidden secret of cash advances
Dec 06 2017
If your holiday shopping has not started yet, do not worry! You will definitely pay more now that the Black Friday weekend is behind us, but considering that nearly half of Quebecers (48%) this year had planned to make their purchases after November 15th (CQCD, 2017), you’re doing the same as half the people around you.
According to the same survey, Quebec households will spend an average of $658 for this period. The holidays really are expensive! We're sure you already knew, but the amount is still impressive. If you thought about using your credit card for these purchases, it could be a good idea, if you’re the kind that can manage to repay all of these expenses at the end of the month. You may have also pondered with the thought of using the cash advance on your card, so that you have hard cash in your pockets.
There are important things to know about the cash advance: here is some very relevant information as we approach the most expensive period of the year.
Cash advance: practical yes, but sneaky too
If you are one of those who never pay interest by clearing your credit card balance each month, this is for you! Credit cards often offer attractive benefits for the consumer such as cash back, travel points or additional insurance when shopping. These are all valid reasons to use them, compared to debit cards that generally don’t provide any advantages. For credit companies, these are lucrative tactics, since many people end up paying higher interest amounts than the bonuses they receive with their card.
For good payers, the credit card is definitely an excellent option, as it they will gradually increase their purchasing power by improving their credit rating in addition to harvesting small returns on their card use. But on the other hand, credit companies had to make money somewhere out of these people. In order to do so, an unknown policy applies to them, when it comes to cash advance: when you make this operation with your credit card, the process automatically triggers interest for the rest of the month on your account, even if you’re up to date.
So, if you have made all your holiday purchases with credit thinking that you’ll be ??paying everything back by the end of the month, but at the beginning of it, you used cash advance for whatever reason, all of your following expenses will be subject to your credit card’s interest rate, even if you pay your bill in full, in terms.
For example: your card is at zero at the beginning of the month, you withdraw $20 with your credit card in an ATM machine, then you purchase all your Christmas gifts, costing you $980. For a total of a $1,000 of expenses.
With this policy, here's what will happen: at a reasonable interest rate of 20%/year, your 20$ withdrawal could cost you an additional $22.16! Your interest on the first month will set you back $16.66, you will pay on average a $2.50 charge on your credit card and the ATM will also bill you approximately a $3 transaction fee.
Definitely something to keep in mind!
The credit card is a very convenient tool for people who are diligent in their payments, and dangerous for those who spend lavishly. But even if you are of the first type, it is imperative to be well informed about the functioning of your credit cards, because they could play you a nasty trick on your next withdrawal!
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