Watch out for fees, high rates on credit card cash advances

When you’re in a tight spot and need money, a cash advance from your credit card can seem like a good idea. It’s not.

According to a CreditCards.com survey of 100 cards’ cash advance terms, the average annual interest rate on a cash advance is 23.68 percent, higher than the average interest on purchases of 15.79 percent.

On top of that, unlike traditional credit card purchases, none of the cards offers a grace period for cash advance transactions. Interest accrues immediately.

A $1,000 cash advance under common terms found in the survey costs an extra $69.73 — the $50 upfront fee, plus $19.73 for 30 days’ interest at 23.68 percent.

“Cash advances can be the best of a bunch of really bad options. They’re cheaper than a payday loan, more convenient than a personal loan, but avoid them if possible,” says Matt Schulz, senior industry analyst for CreditCards.com.

Explore other options.

• Turn to family: Borrow from parents or other relatives. Interest can be structured so the lender receives a fair rate, maybe 3 to 4 percent. “Document the loan and include a payback schedule,” says Martin Levine, a financial planner at 4 Thought Financial Group in Syosset.
• Sell some stuff: “Clean out a closet, attic or basement and sell what you can. It’s a bit of a pain, but you get a two-for-one return on your efforts — cash and a clean house,” says Mitchell Walker, author of “The PouchPlan.”
• Tap a permanent life insurance policy: Says Levine, “Permanent life insurance policies have a cash value available to borrow against at an interest cost of between 5 and 8 percent.”