Do you need cash, and your bank allows you to withdraw money from your credit card? You should reconsider before proceeding, as the Condusef warns of the risks associated with withdrawing money from your credit card.
The National Commission for the Protection and Defense of Users of Financial Services (Condusef) emphasizes that while this may be a suitable option in emergencies, it is essential to note that it will incur interest and other fees based on the terms set by your bank.
This alert from Condusef will encourage you to think carefully before agreeing to co-sign for a debt
What occurs when you withdraw cash from your credit card?
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Withdrawing cash from your credit card can be done similarly to using a debit card, whether at an ATM, through an app, or via online banking. However, the amount you withdraw is considered a loan from the same bank under its specified terms, and you will need to repay it with interest and additional fees.
Moreover, these transactions typically include various commissions that banks impose when you withdraw cash using your credit cards (traditional cards); such as: cash withdrawal fees at your own ATM, annual fees, replacement fees for the card due to theft or loss, collection costs, and the average total annual cost (CAT).
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“It is crucial to evaluate this information, as it may represent an expensive financing method, along with the varying commission percentages charged by different financial institutions,” stated Condusef.
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Do you need money and your bank gives you the option to withdraw cash from your credit card? You better think twice before accepting, since the Condusef alerts you to the risks you run by withdrawing money from your credit card.
The National Commission for the Protection and Defense of Users of Financial Services (Condusef) points out that, although this may be a good option in cases of emergency, the truth is that doing so will generate interest and other charges according to the conditions of the bank where it is registered.
This Condusef alert will make you think twice before agreeing to be a guarantor for a debt
What Happens When You Withdraw Cash from Your Credit Card?
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Withdrawing cash from your credit card is done in the same way as with the debit card, regardless of whether the operation is carried out at an ATM, in the app, or through online banking. However, the money you take out is essentially a loan given to you by the same bank under the same conditions, and you will have to pay it back with interest and other charges.
Costs Associated with Cash Withdrawals
In addition, these operations generally add various commissions that banks charge when you withdraw cash from your credit cards (classic cards). Some of the common costs include:
- Cash withdrawal fees from your own bank’s ATM
- Annual fees
- Replacement fees for lost or stolen cards
- Collection costs
- Average Total Annual Cost (CAT)
What is the APR on credit cards and how is it calculated?
“It is important to review this information, as it could be an expensive form of financing, in addition to the difference in the commission percentage charged by different financial institutions,” said Condusef.
What Risks Should You Be Aware Of?
When considering withdrawing cash from your credit card, it is vital to remain aware of the risks involved:
1. High-Interest Rates
The interest rates for cash withdrawals are typically higher than for regular purchases made with your credit card. This means that if you do not pay off the amount quickly, you could end up paying significantly more than you initially borrowed.
2. Immediate Interest Accrual
Unlike regular credit card purchases that may have a grace period before interest accrual, cash withdrawals usually start accruing interest immediately. This can lead to unexpected costs.
3. Credit Utilization Impact
Withdrawing cash can negatively impact your credit utilization ratio, a key factor in determining your credit score. High utilization may signal to lenders that you are over-leveraged, which could impact your ability to secure future credit.
4. Potential Debt Spiral
Using cash advances can create a cycle of debt that may be difficult to escape, especially if you continually find yourself relying on credit. It’s essential to assess whether you can realistically repay the amount you withdraw.
Practical Tips for Responsible Use
If you must withdraw cash from your credit card, consider these practical tips:
- Assess Your Alternatives: Explore other options such as personal loans or borrowing from friends and family before opting for a cash withdrawal.
- Use Sparingly: Only withdraw what you absolutely need to minimize interest payments.
- Plan for Repayment: Ensure you have a repayment plan in place to mitigate any accumulating interest.
- Check Fees and Rates: Before withdrawing, check your credit card terms to understand the associated fees and interest rates.
Which Cards Should You Avoid for Cash Withdrawals?
Condusef provides guidance on which types of credit cards you should be cautious with regarding cash advances:
| Card Type | Why Avoid? |
|---|---|
| Reward Cards | High interest impacts rewards earnings. |
| Cards with Low Limits | Higher utilization may harm credit score. |
| No Grace Period Cards | Interest accrues immediately on withdrawals. |
Now that you are aware of the potential costs and risks, you may be interested in exploring loans you should NEVER accept, according to Condusef.
