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Convenience Can Be Costly
You've just opened your credit card bill and attached to your
statement you find a "convenience check" included. It may already
be filled out with a dollar amount such as $300, $500, or even
$1,000. Your mind fills with ideas of what you could buy with
this "instant" money. A new summer wardrobe, a nice dinner and
tickets to a concert, a weekend getaway.
But before you go off on a shopping spree, you should be aware
that your "convenience check" is nothing more than a cash advance
on your credit card. Cash advances on credit cards carry many
extra fees, often overlooked or misunderstood by consumers.
Here's a quick look at the types of fees most card issuers
charge for a cash advance:
1) Upfront fee of 2-4% of the amount advanced. On a $1,000
cash advance your fee will range from $20-$40 in addition to the
interest charges.
2) Higher interest rate than on purchases. Many credit card
companies charge 18% or more on cash advances. In addition, most
companies apply only a small percentage of your monthly minimum
payment toward the cash advance.
Some require that you pay down the balance on your purchases
first before applying payments to the higher-interest advance. In
other words, you'll be paying fees and interest on your cash
advance for a long time, especially if you only pay the minimum
payment.
3) Cash advances normally carry no grace period. This means
interest charges accrue as soon as you withdraw money or cash the
convenience check.
By law your credit card company must disclose any fees
associated with a cash advance. The easiest way to find out what
fees are charged is to carefully read your credit card statement
or to call your credit issuer's toll-free customer service number
and ask questions.
Credit card companies charge these fees for two main reasons.
One, to cover the costs to process this transaction which are
often higher than a regular credit card purchase. And secondly
because of the percentage of defaults among credit advance users.
These costs are then passed along to you the consumer in the fees
and interest rates associated with a cash advance.
The next time you are tempted to cash that convenience check
or withdraw money from an ATM using your credit card, be sure you
understand the fees and long term effects of using a credit card
cash advance.
© 2004, www.yourfreecreditreportnow.com
Author: James H. Dimmitt - James is editor of "TO YOUR CREDIT", a
weekly free newsletter. Subscribe to the newsletter by visiting
http://www.yourfreecreditreportnow.com.
MORE RESOURCES:
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