Should I roll over a cash advance to a 0% APR balance transfer card?

If you’ve ever turned to a cash advance and burnt your fingers with the high interest rates, you might be looking for a way out of that situation. With the pandemic imposing hardship on many, a cash advance might have seemed to be the answer to your prayers, but it’s not an unmitigated blessing.

Cash advances are expensive

As the name implies, a cash advance is a loan that is available to you from your card issuer. You could get the cash by writing yourself a cash advance check that the issuer sent you and depositing it into your bank account.

If you need the cash right away, you could even get the cash from an ATM, but you will need a credit card PIN for that. There are also limits on how much money you can draw from an ATM each day.

These advances carry a transaction fee, around 3% to 5%, and typically charge very high interest rates of about 25%. In comparison, the average credit card APR, or total cost of credit, for purchase transactions was about 16% as of mid-May.

See related: How does credit card interest work?

Save money by switching to a 0% APR balance transfer card

You probably turned to a cash advance because you needed the money instantly, and that’s why the interest rate is so high. When it comes to paying it off, though, you have more time to consider your options and avoid paying steep interest rates. One strategy could be to move the cash advance balance to a credit card that offers a promotional 0% balance transfer rate.

If you do qualify for such an offer, you should make use of the balance transfer promotional offer before it expires, since these offers are typically extended for a limited time period. The balance transfer would also typically carry a transaction fee, of about 3% to 5%, with a minimum fee of about $5. Even with this fee, you’d be moving down from an interest rate of about 25% to a 0% rate, so you’d still be ahead.

Remember that it takes several days, or even a few weeks, for balance transfers to go through, so you should continue to make your minimum payments on the cash advance until the balance transfer is complete.

See related: Balance transfer cards bounce back

Drawbacks of transferring to a 0% APR balance transfer offer

After using this strategy, be sure to pay off your balance before the promotional 0% APR ends. Otherwise, you will not be able to avoid paying interest, since the 0% rate would then go up to your purchase interest rate.

Another pitfall to avoid is that if you don’t keep up with the payments, or make late payments, you would lose the promotional rate even before the promotional period ends. You should read the fine print of the balance transfer offer to see if there are any other risks.

And if you do make purchases on this card, you typically will not have an interest-free grace period before interest is charged, unless the card also comes with a promotional 0% rate on purchases. The purchases will start to incur interest right after they post to your account.

Further, any minimum payments you make will first be applied to the balance transferred under the 0% promotional offer. Only payments above the minimum required would apply to the higher-interest rate purchase balance.

Another matter to consider is that you usually will not earn any rewards on the balance you transfer.

See related: What to do when your balance transfer is denied

Impact on your credit score

If you are applying for a balance transfer credit card, the issuer will make a credit inquiry. If there are multiple such inquiries from applying for several cards, that could have a negative impact on your credit score.

One positive aspect is that a new card will raise the total credit available to you. For instance, if the new card carries a $10,000 limit and you carry three other cards with a combined limit of $20,000 your new credit availability will be $30,000.

This means that if you carry a total balance of $15,000, your credit utilization ratio will go down from 75% to 50%. This lower credit utilization would be a positive for your credit score, unless you start making new purchases with the higher total credit level now available to you.

See related: What is the limit for balance transfer cards? 

Bottom line

If you have taken on a high-interest cash advance it could be a good strategy to transfer the balance to a promotional 0% introductory balance transfer card. However, be disciplined with purchases and careful to pay off your balance before the promotional period expires so that you do get the most out of this strategy.