Credit cards offer more than just a way to make purchases. They come with features that can help you manage debt or access quick cash in emergencies. Two popular options are balance transfers and cash advances. But they are very different, and understanding how each works can save you money and stress. A recent report found that 60% of Americans carry credit card debt month-to-month, which makes understanding these tools even more important.
What Are Balance Transfers and Cash Advances?
A balance transfer lets you move debt from one credit card to another card, often at a lower or even 0% interest for a limited time. For example, if you’re paying high interest on your current card, transferring that balance to a card with a promotional 0% APR can help you save money and pay off the debt faster.
A cash advance, on the other hand, allows you to borrow cash against your credit card limit. You can withdraw this cash through an ATM, a bank, or with a special check from your credit card company. While it’s convenient for emergencies, cash advances usually come with high fees and interest rates that start accumulating immediately.
Wondering, “Is a balance transfer a cash advance?” The answer is no. They may both involve credit card transactions, but they serve completely different purposes.
Benefits and Downsides of Balance Transfers
Why Choose a Balance Transfer?
Save on Interest
Most balance transfer offers come with a 0% APR for a promotional period (often 12–21 months). This means you won’t pay interest during that time, helping you put more money toward paying down the principal debt.
Simplify Your Finances
If you owe balances on several cards, transferring them to one card can make life easier. You only have one bill to focus on each month instead of juggling multiple payments.
Boost Credit Scores
Paying off credit debt on a single card can improve your credit utilization ratio, which may positively affect your credit score.
For example, if you have three cards with $1,000 each at 20% interest, you could transfer the balances to a 0% APR card and save hundreds of dollars in interest.
Watch Out for the Downsides
Transfer Fees
There’s usually a fee for moving your balance, typically 3–5% of the amount transferred. For instance, on a $3,000 transfer, you could pay $90 to $150 upfront.
Promotional Period Ends
The low or zero interest rate is temporary. Once the offer ends, your rate could jump to the standard APR if you haven’t paid off the balance.
Good Credit Required
Balance transfer cards usually require a decent credit score to qualify for the best offers.
Benefits and Risks of Cash Advances
Why Go for a Cash Advance?
Quick Access to Cash
A cash advance can get you money fast, especially in emergencies when you can’t use a credit card directly to pay.
Easy to Use
No need to apply for a new loan or deal with a credit check. If your card has available credit, you can withdraw cash immediately.
For example, a cash advance could seem like a lifeline if your car breaks down or you have an unforeseen medical bill to pay.
Why Think Twice?
Very Expensive
Cash advances often carry the highest interest rates of any credit card transaction, sometimes above 25%. Plus, interest starts from the day you take the advance, with no grace period.
Fees Add Up
On top of the high interest, you’ll pay a cash advance fee (usually 3–5% of the amount). Borrowing $500 could cost you $15–$25 right off the bat, not including the interest.
No Rewards
Unlike regular purchases, you won’t earn any cash back or points for a cash advance. The only thing you’ll get is the cash.
Can You Use a Balance Transfer for a Cash Advance?
A common question comes up here: “Can you balance transfer a cash advance?” Yes, in some cases, you can move the balance of a cash advance to a card with a lower interest rate using a balance transfer. Many people do this to manage or reduce the high costs of cash advance debt. This process is sometimes referred to as a “cash advance balance transfer.”
For example, if you’ve taken out $1,000 as a cash advance with 27% APR, transferring it to a 0% APR balance transfer card could save you a lot of money. However, you’d still need to pay the balance transfer fee and ensure your new card allows it. Always check the terms and limitations before proceeding.
To find out if you can balance transfer a cash advance, it is a good idea to get in touch with your card issuer.
When Should You Use Each?
Use a Balance Transfer to:
- Lower your interest payments and pay off credit card debt faster.
- Consolidate several debts into a single, manageable payment.
- Save money over time if you stick to the payoff schedule.
Use a Cash Advance Only:
- For emergencies when no other payment option is available, such as paying rent or an urgent medical bill.
- When you’re confident, you can repay the borrowed sum quickly to reduce the interest charges.
Making Smart Moves with Balance Transfers and Cash Advances
When it comes to managing credit card debt or handling emergencies, balance transfers and cash advances serve very different roles. Making the most of these tools is all about planning and smart decision-making. If you’re using a balance transfer, focus on paying off your debt before the promotional APR ends. This can save you money and help you reduce debt faster.
Building an emergency savings fund can also help you steer clear of reliance on costly cash advances in the future. And remember, not all offers are created equal. Shop around carefully to find the best credit card options that fit your needs.
Ultimately, balance transfers offer a chance to save on interest and take control of debt when used wisely. On the other hand, a cash advance should only be used in urgent situations due to its high costs. You can safeguard your money and work toward a more secure financial future by being aware of the terminology and planning ahead.