Here's What Happens When You Use Your Credit Card to Get Cash at an ATM

Credit cards are a convenient way to pay, but using them in certain ways could mean you incur fees. Luckily, it's possible to make strategic purchase and payment decisions that don't cost you extra. While using a credit card to pay for everyday purchases you can afford is a good idea, you may want to rethink using a credit card to get cash from an ATM if you dislike wasting money. Here's what to expect when you use your credit card to get cash.

Can you use a credit card to withdraw cash from an ATM?

Not every business accepts debit or credit card payments -- some only accept cash. If you only have a credit card, you may consider using it to get cash from a nearby ATM. Using a credit card to withdraw cash from an ATM is possible -- it's called a cash advance. However, you'll pay more for this convenience.

Using your credit card to withdraw cash is costly

You may want to rethink using your credit card to get cash. Why? Because you'll be charged a cash advance fee when you use a credit card to withdraw cash from an ATM. Since you'll be borrowing money from your credit card issuer instead of using a debit card to access the cash in your checking account, this type of credit card transaction can be expensive.

Cash advance fees vary, but you can expect to pay anywhere from 3% to 5% of the total amount of the cash advance. If you're using your credit card to withdraw $1,000 from an ATM and your credit card company charges a fee of 5%, you'll pay $50 in cash advance fees. But that's not the only extra cost you'll incur.

You'll also be charged interest on the cash you borrow. Usually, there's a grace period when you use your credit card to make a purchase, which is the period between the end of the billing cycle and the date your credit card payment is due. During the grace period, no interest is charged. You can avoid credit card interest by paying off your balance on or by the due date.

But cash advance transitions are treated differently than regular purchases. There is no grace period for this transaction type, which means interest will begin to accrue from the date of your cash advance. It's also worth mentioning that the interest rate for cash advance transactions are often higher than your usual credit card interest rate. A higher interest rate means you'll pay more for the transaction than you would for using your credit card as a direct payment method.

You may also be charged an ATM fee when using an ATM. These extra charges add up, quickly making your cash advance more expensive than planned. You should be aware of additional fees like this to avoid overspending and to stay out of credit card debt.

Be aware of extra fees

Extra fees, no matter how small, impact your personal finances. If you use credit cards regularly, you'll want to be aware of all potential fees. Your cardholder agreement lists all fees and other important account details, so it's recommended that you review this document so you're in the know. By making strategic credit card usage decisions, you can avoid wasting money on fees.