Using a credit card to withdraw cash from an ATM is a financial decision that should be avoided at all costs. This practice has recently gained attention, and people are starting to realize the pitfalls associated with it.
Withdrawal of cash through a credit card, known as a cash advance, may seem like a convenient option, but it can lead to significant financial consequences.
In a viral TikTok video, Amanda, one of the founders of Hiver Academy, shared her friend's experience with a cash advance.
Her friend thought it would be a smart move to withdraw cash using her credit card to earn points and pay off the balance at the end of the month.
However, she soon discovered that her credit card statements showed exorbitant interest charges.
Amanda explained that when you make a purchase using a credit card, you don't pay any interest as long as you pay off your bill on time.
But with a cash advance, interest starts accumulating from the moment you withdraw the cash, and it can quickly become overwhelming.
Financial institutions caution credit card holders about the hidden costs associated with cash advances.
Jason Gaughan, SVP of Consumer Card Products at Bank of America, explains that when you take a cash advance, the credit card company essentially lends you money and charges your account accordingly.
Unlike a debit card withdrawal, where you access your own funds, a cash advance incurs transaction fees and a higher annual percentage rate (APR).
Moreover, there are usually limits on the amount of cash you can withdraw.
Remarkably, the fees your bank charges and make sure to pay off any interest right away to avoid those hidden costs.
Only use a cash advance in urgent situations, not for everyday cash needs.
The founders of Hiver Academy want everyone to understand how important it is to know about money and be careful when using credit cards.
They have an online class that teaches people how to handle their finances better and make good choices. The goal is to help individuals feel more confident about managing their money and use credit cards wisely.
