Why Withdrawing Cash From A Credit Card Is A Bad Idea

Credit card s have become an essential part of our financial lives, offering benefits like interest-free payments, reward points, cashback, and more. However, one feature that should be approached with caution is the option to withdraw cash from ATMs using a credit card. While it might seem convenient, this action can lead to significant financial consequences . Here’s why you should think twice before using your credit card for cash withdrawals .

Understanding Cash Withdrawal Limits:
Every credit card comes with a specific cash withdrawal limit, which is a percentage of your overall credit limit. Typically, banks allow you to withdraw only 20% to 40% of your credit limit as cash. While this might seem like a handy option in emergencies, the limitations imposed by banks highlight that it’s not an ideal way to access funds.

The High Cost of Cash Withdrawals:
Withdrawing cash from a credit card comes with immediate costs. The moment you take out cash, you’re hit with a cash advance fee, usually ranging between 2% to 4% of the amount withdrawn. But the expenses don’t stop there. Unlike regular credit card transactions, where you enjoy an interest-free period, cash withdrawals start accruing interest from day one. The interest rates can be steep, and they continue to accumulate until the full amount is repaid.

Hidden Fees and Charges:
Apart from the hefty interest rates, banks also impose additional fees for cash withdrawals. These fees are calculated from the date of the transaction until the day you settle your bill. On top of that, if you fail to repay the full amount on time, you’ll be hit with late payment charges, which can range from 15% to 30% of the outstanding balance.

ATM Charges Add to the Burden:
Using your credit card to withdraw cash frequently can also result in ATM charges. While some banks may offer a limited number of free ATM transactions, exceeding that limit could lead to extra fees, adding to the already high cost of cash withdrawals.

While cash withdrawals from a credit card might seem like a convenient option during emergencies, the associated costs and charges can quickly outweigh the benefits. The high interest rates, fees, and potential penalties make it a financially risky move. It’s best to reserve this feature for absolute emergencies and explore other, less costly alternatives whenever possible.