Those checks your credit card company sends you may be tempting. But if you use them, it'll probably cost you.
The so-called "convenience checks'' are one form of a cash advance, and a new survey from CreditCards.com finds that such advances often come with high fees and interest rates.
Of the 100 cards reviewed by the site, 98 charged for a cash advance, and most often the fee was 5% of the amount, or $10, whichever is more.
And unlike a regular credit card purchase, interest on cash advances usually starts accruing right after the transaction. Given that the average interest rate on an advance is 24%, a steeper rate than what's usually attached to a standard purchase, consumers can wind up owing far more than they bargained for.
"I think that people generally understand that the cash advance is kind of a different animal than your standard credit card purchase, I just don't know that they know fully all the details,'' says Matt Schulz, senior industry analyst for CreditCards.com. Interest kicking in immediately, for instance, "can make those super high interest rates an even dicier proposition than they would normally be.''
A typical $1,000 cash advance would cost an extra $69 even if it's paid off in 30 days because of the fee and interest beginning to accrue immediately. On the other hand, a standard credit card purchase of $1,000 would not accrue any interest if paid off within that same month-long period.
Other credit card transactions that might be considered cash advances are money orders, wire transfers and even the purchase of a lottery ticket.
Schulz adds that a consumer who only pays the minimum amount due may not make a dent in what they owe for a cash advance. That's because the federal Credit CARD Act allows card issuers to direct a minimum payment to the balance that carries the lowest interest rate. And that's unlikely to be the higher interest cash advance.
"The longer you let those high interest rate balances continue to grow, the harder and harder it will be to eventually get rid of that debt,'' he says.
Despite the costs, a cash advance may sometimes be necessary, Schulz acknowledges, and it can be less onerous than a payday loan, or in some cases, even an overdraft.
"When you boil it all down, what people need to know is that cash advances can be the best of a bunch of really bad options when times get tough,'' he says. "If you do (take) one, it's incredibly important to pay it off as soon as you possibly can because the math can work against you really quickly.''
"But,'' he emphasizes, "under normal circumstances, they're something you should avoid.''
Based on CreditCards.com's review of 100 credit cards, those cards with the highest APRs for a cash advance were:
•First Premier Bank credit card (36.00%)
•BP Visa and the Texaco Visa (both 29.99%)
•ExxonMobil SmartCard (29.95%)
