credit & debt

The High Price of Cash Advances

Your car’s been towed and you bail it out by using your credit card to get a $200 cash advance at the nearest ATM.

Your car’s been towed and you bail it out by using your credit card to get a $200 cash advance at the nearest ATM. But when you receive your next statement, you realize you’ve paid a steep price for the privilege.

Taking a cash advance is defensible in an emergency—but only in an emergency. Issuers treat an advance as a quick loan. You’re usually charged $10, and the interest rate often runs high. Plus, there is no grace period. By the time you get your next statement, that $200 loan could have accrued $13.42 in fees and interest—adding up to a 25% APR. But you don’t have to wait for the bill to make good on the advance. Repay the $200 within ten days, say, and you would owe only $1.37 in addition to the $10 fee.

If you buy traveler’s checks, foreign currency or a money order with your card, your bank will also treat the transaction as a cash advance. Better to withdraw the money from a checking or savings account.

The good news: If you think the bank has made an error—say, charged you twice for the same withdrawal—you’re protected by the Fair Credit Billing Act. Write a letter to your credit card issuer at its billing-inquiries address and send it by certified mail, return receipt requested. The letter must arrive within 60 days after the bill containing the error was mailed to you.

Your card issuer must acknowledge your complaint in writing within 30 days and resolve the dispute within two billing cycles. If there is an error, the issuer must remove the disputed amount. If, however, the investigation shows that the bill is correct, you’re obligated to pay the disputed amount plus any finance charges.

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