Emergency 'cash advances' can sting your pocketbook

By Robert K. Heady

       Short of cash? Need a few bucks to tide you over?
       Better watch how and where you borrow. You could pay double the fees and interest rate from your friendly banker, or as high as - believe it or not - 910 percent interest from convenient "payday loan" shops.
       Most folks are hooked on getting a cash advance from their credit or debit card, by withdrawing funds from an ATM or over the counter at their bank. Or, better still, by taking "cash back" when they go through a supermarket or drug store checkout line. Even many U.S. post offices now offer a cash-back feature.
       But the average Joe or Jane rarely bothers to read the fine print on bank literature or their monthly statement. As a result:

They're socked with a fee amounting to 2 percent to 5 percent of the sum advanced, plus a $5 to $10 transaction fee.
The interest rate on the cash advance is almost higher than the rate on credit card purchases, often as much as 24 percent.
There's no grace period on cash advances. The rate meter starts ticking the second you get your cash, whereas the typical credit card grace period is 20 or 25 days.
Biggest rip-off: When you make monthly payments on the card, most banks insist that you first pay off your balance on purchases before they'll accept a payoff on cash advances. Meanwhile, you're stuck with the higher interest charges for a long time.

       The bottom line, say consumer advocates, is what happens when a bank fee is 2 percent on a cash advance, but not less than $10. If you take a $20 advance, you'll immediately pay 19.99 percent interest on $30, not just the $20 you borrowed.
       It's no secret that bank fees have soared, thanks to the ignorance (laziness?) of the average consumer, who regards grabbing an ATM cash advance on their plastic as a "convenience." In fact, they're usually hit by two fees when they use another institution's machine. By law, banks must disclose all of their fees and charges to customers, who rarely bother to check them out.
       Plus, the system can get complicated. One bank may offer as many as five or six different credit cards, all under different brand names and with different basic annual percentage rates (depending on the cardholder's credit history), cash advance rates and fees, and delinquency rates (for late payment). Who's gonna wade through all that?
       For example, Citibank has peddled a slew of different cards through the years. It's had a Silver Classic card whose APR has ranged anywhere from 9.9 percent to 24.99 percent, while cash advance amounts have been charged 19.99 percent with a 3 percent fee and a $5 minimum. At Providian National Bank, a GetSmart Visa Platinum card has had a 1.9 percent introductory rate, then it shot to 9.9 percent with a cash advance fee of 21.99 percent plus a 3 percent transaction fee with a $5 minimum. The delinquency rate has been 19.99 percent. But on another Providian card, GetSmart Visa Classic, the cash advance soared to 23.99 percent, and the delinquency figure rose to 27.99 percent.
       My advice:

If you must get emergency cash of, say, 50 bucks or so, get it from a supermarket instead of a bank. There's no transaction fee or interest charge. Some stores are directly online, meaning the money comes out of your account immediately. With others it will take two to four days. Always record the transaction instantly in your checkbook.
Get your bank's fee disclosure document, and study it.
For cash advances, use a debit card instead of a credit card to better discipline your spending.
Repay cash advances as quickly as possible. Remember, card issuers credit your payments on purchases first.
Never go wild with a multiple string of cash advances. You'll pay for it through the nose.
Never get money through "payday loan" outfits. The annualized rate could rocket to between a shocking 182 percent to 910 percent, according to a study by the Consumer Federation of America.

Editor's Note: Robert K. Heady is the founding publisher of Bank Rate Monitor. He invites Bull & Bear reader mail on consumer money problems and solutions but cannot respond personally to all inquiries. Send e-mail to jrnl8888@aol.com, or write to P.O. Box 14875, North Palm Beach, FL 33408.