What You Need To Know About Using Your Credit Card To Buy A Cash Advance

Compared to checks or cash, money orders are a more secure way to send money. You have a few options to get one: cash, bank transfers, debit cards, and sometimes credit cards.

Getting a money order with a credit card may seem like a good idea because of the convenience. However, as US News My Money explains, you might find that several downsides may outweigh the benefits.

Where Can You Purchase Money Orders With Credit Cards?

Very few big-name merchants let you buy money orders with credit cards. 7-Eleven and Western Union are your only options. 

If you don’t have the funds to get a money order — perhaps you’re waiting for your paycheck to clear or don’t have any cash — a credit card is one way to get one. However, it would be best if you didn’t use this final option due to steep fees and interest unless it’s unavoidable.

Capital One, Chase, American Express, and other credit card companies categorize money orders as a “cash equivalent,” meaning the purchase will be recorded as a cash advance, not a standard transaction.

According to Maggie Germano, the CEO and founder of Maggie Germano Financial Coaching, cash advances are basically like borrowing cash from your line of credit. “There are extra fees that come along with getting a cash advance,” she says, “(and) there also may be higher interest rates.”

Not only do you have to pay the cost of the money order, but you also have to deal with additional charges, such as:

 

  • Cash advance fees: These can be between 3% to 5% of the amount or a minimum of $5 to $10. If you purchase a $1,000 money order, you’ll pay between $30 to $50 extra just for fees.

 

  • Cash advance APR: Most credit cards have a higher interest rate for cash advances than standard transactions — sometimes as much as 30%. 

 

  • No grace period: Regular purchases usually give you 21 days or more to pay your bill interest-free. But according to Mike Sullivan a personal finance consultant at Take Charge America, cash advances don’t offer this leniency. Since the steep APR triggers the day you get the money order, Sullivan says, “(That combination) makes cash advances a very expensive way to borrow money.”

 

It’s in your best interest to find another way besides credit cards to cover the cost of a money order — unless something like a payday loan is your only other choice. Payday loan services or auto title loans often come with APRs in the triple-digits, making credit cards’ high APRs look like nothing.

Something you should keep in mind is that, by law, credit card issuers have to count any amount you pay beyond the minimum payment to the balance with the highest APR. In other words, if you buy a money order with a credit card, your costs would go toward that amount before your purchases, helping you save on interest. However, if you’re working on getting out of debt, it may disrupt your progress.

Last-Resort Alternatives To Consider

If you need a money order but don’t have any means to pay for it besides your credit card, consider these options instead.

 

  • Ask to pay your bill with your credit card directly: If you need to pay for rent, utilities, or another living expense, check if you can use your credit card. You may have a marginal fee, but it’s better than cash advance fees and high interest rates.

 

  • Get a loan: Most personal loans have lower interest rates than credit cards. But if your credit prevents you from getting an affording rate, you could seek a secured personal loan or ask someone you trust to lend you the funds. 

 

  • Ask for a salary advance: If possible, you could consider asking to get your paycheck early. You might have to make installments to pay it back or skip your next payment altogether. Make sure you understand the terms and ensure a potentially missed paycheck won’t make things more difficult for you down the line.

 

As you weigh your choices, you must consider the costs against the benefits. “The only times a person should get a cash advance is when it is the least expensive option or the only available option,” Sullivan says. 

So if you need to purchase a money order, do your homework to make sure it’s as affordable as possible.

 

Source
  • Luthi, Ben. “Can You Buy a Money Order With a Credit Card?” U.S. News & World Report, U.S. News & World Report, 30 Oct. 2018, creditcards.usnews.com/articles/can-you-buy-a-money-order-with-a-credit-card.
Ian Schindler