Why Credit Card Cash Advances Are Never a Good Idea

A Dallas area business owner, Renell (“Rae”) Shorter leads Styles by the Lash Diva in The Colony and offers customers fashion-forward makeup, eyelashes, and hairstyles. A mentor to entrepreneurs in her local community, Renell Shorter assists people in living productive, debt-free lives that maximize opportunities.

One of the key aspects of living without the burden of major debt is foregoing the ATM cash advances available through credit cards. The issue with cash advances begins with percentages, or fees, charged on the transaction itself. This is typically a flat fee such as $4, or 4 percent, whichever is higher. Beyond this advance fee, there is the ATM fee as well, unless the credit card is tied to the bank from which the money is withdrawn.

The next challenge is the significantly higher interest associated with the cash advance compared with the interest charged on purchases. With no grace period offered, the interest on cash advances begins to accrue immediately.

Additionally, the money owed on credit card purchases is automatically allocated for pay off before the cash advance principal is touched. If a card has $10,000 in total debt, with $4,000 associated with cash advances, $6,000 must be paid off before reaching a point of paying off the higher interest portion of the debt. Another problem with cash advances is that they are often necessary when people experience financial setbacks and need money fast. This is not the ideal time to add high-interest debt, and any strategy that avoids this should be carefully considered.

A Brief Overview of the Equal Credit Opportunity Act

Renell Shorter is the owner of Credit Diva of Dallas, a consulting firm that provides personal financial guidance, credit repair, and credit education. In addition, Renell "Rae" Shorter helps her clients understand their credit rights, many of which are outlined by the Equal Credit Opportunity Act (ECOA).

A United States federal law passed in 1974, the ECOA states that credit applicants may not be discriminated against based on race, religion, and marital status. Additionally, the ECOA guarantees that each individual has the right to his or her own credit profile and history. 

This law is enforced by the Federal Trade Commission, an agency that oversees many aspects of consumer safety. The ECOA is important to consumer credit rights, ensuring that all applicants are judged on identical criteria, such as credit score, credit history, income, and debt. 

While creditors cannot use these factors in making credit decisions, they are allowed to ask for their own data purposes. Additionally, some factors not allowed to be used in deciding creditworthiness, such as marital status, may still play a role in determining whether credit is granted. For example, if a married couple files a joint tax return and shares assets, the debt and income of either partner may come into play when eligibility for loans, such as a mortgage, is determined.