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What's the Difference Between a Balance Transfer and a Cash Advance?

You can use your credit card for quick cash or to pay bills, but is it worth it? Compare cash advances vs balance transfers to see which works for you.

Quick answer: A cash advance puts cash in your hands while a balance transfer is usually a transfer of debt from one card to another.

Credit cards are handy tools for spending and earning rewards. But you can also use them to make balance transfers or cash advances.

A cash advance and a balance transfer both allow credit card customers to access their credit lines for cold hard cash.

Although they sound like, there are some key differences to know that set them apart.

In the match-up cash advance vs balance transfer, you'll be incurring more credit card debt. But one of them is the lesser of two evils.

Wondering exactly what the difference is between balance transfers and cash advances? Here's what you need to know.

What is a Balance Transfer?

A balance transfer involves moving balances from one credit card to another.

Generally, you'd consider a balance transfer if you want to save money on interest. Credit card companies routinely offer 0% introductory APR balance transfer offers to attract customers.

If you decide to take them up on their offer, you could transfer a balance from one card to the new card at 0%.

Assuming you pay the balance transfer off before the promotional period ends, you could save interest and potentially get rid of your debt faster.

How balance transfers work

The mechanics of a balance transfer are relatively simple.

  • You request a balance transfer from one card to another
  • The credit card company handles the transfer
  • You make payments to the balance transfer card going forward

There are different ways you can request a balance transfer.

First, you can apply for a new balance transfer credit card. This means opening a new credit card account.

At the time you apply, you can tell the credit card company which balance you want to transfer. You'll need to share card details, including the account number.

If you're approved for a balance transfer card, your new credit card company will handle moving the balance from the old card.

The next way to transfer balances involves balance transfer checks. These are paper checks the credit card company mails to you.

To transfer a balance this way, you'd simply write a balance transfer check to the card you want to transfer.

It's similar to paying any other bill with a check. Only you're not getting rid of the credit card balance, just moving it to a new card.

You can also apply for balance transfers online.

If you have a credit card that's advertising a balance transfer promotion, for example, you can login to your account to review the offer. If the promotional rate sounds good, you can fill in the appropriate account number and balance amount to initiate a transfer.

Balance transfer cost

A balance transfer can save you money on interest. But there are costs involved.

Specifically, that means paying a balance transfer fee.

A balance transfer fee is a fee the credit card company charges for transferring a balance. This fee can be a percentage of the balance transferred. Or you may pay a flat fee.

Typical balance transfer fees are in the 3% to 5% range, with a minimum of $5 to $10. Though the fee you pay can depend on the card. Balance transfer fees get added on to your balance.

So, say you're transferring a $5,000 balance from Card A to Card B. You pay a 5% transfer fee. That means your new balance on Card B would be $5,250 or $5,000 plus a $250 balance transfer fee.

Pro tip: Look for a card with no balance transfer fee.

Some balance transfer cards waive the fee if you complete a transfer within the first few months of card opening. Explore your balance transfer card options.

What Is a Cash Advance?

A cash advance is an advance against your card's credit limit.

This is a type of short-term loan that you can get from your credit card company. You'd have to pay back what you borrow with interest.

Cash advances are treated separately from purchases or balance transfers. That means a different APR can apply to each one.

Of the three, cash advances tend to carry the highest interest rates. While they can be a convenient way to get money quickly, they can be an expensive way to borrow.

How a cash advance works

Cash advances are similar to balance transfers, in terms of how you request one.

If you have a credit card account, you can request a cash advance online. You tell the credit card company how much cash you need. If you're approved, they can deposit it to your bank account.

Or your credit card company may send you cash advance checks in the mail. You can write one of these convenience checks out to cash, then cash it at your bank.

And you may be able to get a cash advance by withdrawing cash at an ATM using your credit card.

Instead of making a purchase or moving a balance, you're getting cash that you can use to:

  • Pay bills
  • Cover unexpected expenses
  • Pay for things that require cash instead of cards

The amount of cash you can get is determined by your card issuer.

So, for example, you may have a purchase limit of $5,000. But your cash advance limit may be capped at $1,000.

Cash advance fees

Just like balance transfers, fees can apply to cash advances. Cash advance fees can be a percentage of the advance amount or a flat fee. But the fees may be higher than balance transfer fees.

For example, your card might impose a fee of 5% or $10, whichever is greater.

If you take out a $1,000 cash advance, a 5% fee adds up to $50. It's rare to find credit cards that waive this fee.

When Does a Balance Transfer or Cash Advance Make Sense?

Balance transfers can be useful if you want to:

  • Consolidate credit card debt
  • Save on interest charges
  • Pay debt off faster

You're not getting any cash from the transfer. Instead, you're restructuring existing debt to make it more affordable.

Cash advances, on the other hand, create new debt. That's because you're borrowing against your existing credit limits. A cash advance could be appropriate if:

  • You need money quickly
  • Other borrowing options (i.e. loans, lines of credit) are limited
  • You don't mind paying a cash advance fee

So in a nutshell, balance transfers are good for paying off debt. Cash advances, meanwhile, could be good for short term borrowing.

FAQs

Balance transfers and cash advances are two very different ways to use your credit card. Here are answers to some commonly asked questions about both.

Can you use balance transfer checks to get cash?

The short answer is, it depends.

Generally, balance transfer checks are designed to be used to pay off balances on other cards.

But your credit card company may give you the option to write a balance transfer check out to cash. In that case, you could use the cash to pay off non-credit card debts, including personal loans or lines of credit.

Just keep in mind that balance transfer checks are not blank checks. You can only write them out for the balance transfer limit your credit card company specifies.

And if you're using them for something other than balance transfers, you're creating new debt.

How much cash advance can you get from a credit card (vs. a balance transfer)?

Cash advance limits and balance transfer limits typically aren't the same.

Your balance transfer limit may be equal to your card's credit limit. So if you have a card with a $10,000 credit limit, you may be able to transfer a balance up to that amount.

Cash advance limits, on the other hand, may be a percentage of your overall credit limit.

So, if your cash advance limit is 25% of your credit limit you'd be able to withdraw $2,500 in cash. That assumes a $10,000 credit limit.

Your cash advance limit can be determined by your card's limit. But your card issuer can also consider your creditworthiness as well.

Do APR grace periods apply for balance transfers and cash advances?

Generally, the grace period doesn't extend to balance transfers or cash advances.

But if you're transferring a balance to a card with a 0% APR, then you wouldn't pay interest until the promotional period expires.

With cash advances, interest starts accruing right away. And since the APR is typically higher than the purchase or balance transfer APR, this can quickly make them expensive.

For that reason, it's important to consider how quickly you can pay back a cash advance. The sooner you pay it off, the better for minimizing interest charges.

And with balance transfers. also think about how much you'll need to pay monthly to clear the balance. You can avoid interest charges entirely if you can pay the balance off before the introductory APR ends.

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