We explain why withdrawing cash with a credit card to pay for household bills can end up being costly.
It’s not uncommon to resort to making credit card cash withdrawals to make ends meet, but it’s one of the more expensive ways to borrow money.
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Previous uSwitch research suggested that over one million people make cash withdrawals with their credit card to pay off mortgages, loans and household bills.
Yet many consumers are still unaware of the true cost of taking out cash with a credit card, believing it to be no different to using a debit card.
The facts about credit card withdrawals
Whether you make a credit card cash withdrawal from a cash machine at home or abroad, you’ll pay interest from the day you make the withdrawal.
This is because unlike standard credit card purchases, cash withdrawals are never interest-free. Cash withdrawals are also often charged at a much higher APR than the standard rate paid on purchases.
Withdrawals made overseas also incur a cash handling fee, a foreign exchange fee and a higher interest rate with no interest-free period.
Credit card withdrawal alternatives
The best alternative by some distance is to withdraw cash with a debit card, which is always cheaper than any credit card cash withdrawal. Cash aside, even paying directly for items using a credit card can work out to be cheaper.
If your current account has an overdraft facility, you could try using or extending it slightly. Overdraft charges are generally much cheaper than withdrawing cash with a credit card, while you might also get the benefit of an interest-free period in which to clear the balance.
If you have no other option but to make a credit card cash withdrawal, you’ll need to clear your balance as soon as possible to avoid racking up huge interest charges.