'Tis the season to be jolly - and Christmas usually means spending more than you'd like to. During the season of giving, it can be hard to resist the urge to turn to credit cards for a little relief. However, using your credit cards to borrow cash can be surprisingly expensive and you should be prepared for high fees.
Credit card providers rarely let you borrow money for free. Your current debt and purchases may be covered by a zero percent deal, but that won't last forever and one day you'll be charged for spending money on your credit card. The difference is that you don't get the same leeway with credit card cash withdrawals. If you want to borrow cash on your credit card you'll have to pay - and in most cases, you'll pay dearly.
The truth is that if you pay off your balance each month, withdrawing cash from an ATM with your credit card won't cost you anything. However almost all credit cards charge very high-interest rates on cash advances - and the interest is charged immediately. So if you don't pay off your balance you'll have to pay for the interest from the point you withdraw the money.
The situation is even worse if you take cash out with your credit card while you are abroad. Most providers will offer you a poor exchange rate for starters, but will also charge the same high rate of interest and in many cases an administration fee for handling the transaction as well. It all adds up to a bad deal, so avoid ATMs abroad with your credit card if you can.
What's the solution?
Cash withdrawals have always been the most expensive element of a credit card - there's no escaping the cost. But if you think you might have to withdraw cash on your credit card, assess your providers to see what the charges are for an advance. The bottom line is that there's never a cheap time to withdraw cash with your plastic. There may be a necessary time - particularly in emergencies - but in those circumstances, the cost of the process is usually not a consideration.
With so many ways to pay for products and services these days, the cost of cash shouldn't be the major reason for your choice of credit card. A 0% Purchase Rate Credit Card, for example, would allow you to get that 'must have' gift and put off paying it back for months.
So, if you insist on splurging with your credit card this Christmas, make sure you do it at the till and not at an ATM.
Happy Holidays, from your friends at North Country Savings Bank.