No-Nos #113: Convenience/Cash Advance Checks
Posted by Cap in Credit Related on August 24, 2006 |Ah, convenience checks. Aka cash advance checks. When I see them in my credit card statements (mostly from Chase), I’ll go ape crazy and rip the checks into pieces and throw them into the fireplace—because as you all know, fire changes the physical and chemical property of paper. There’s little chance the paper will reappear! (Until next month).
You may find these convenience checks included in your monthly credit card statement. There will usually be a nice letter accompanying it, from your credit card company:
Hey best friend!
Use these convenience check to pay for that summer vacation, grocery purchase, or helicopter! All you have to do is write the amount, sign your name—use them like a regular check!
Yours, Credit Card Company.
Convenience checks are anything but convenient. If your definition of convenience is living on the streets due to credit card debt, then you’re dead-on.
These convenience/cash advance checks are of a major difference when compare to balance transfer checks. When you utilize a convenience/cash advance check, you are tapping into the cash line of your credit card. The cash line is included within the total credit limit of your credit card—usually a percentage of your total credit limit, and thus lower than your total credit limit.
Example, your credit card may have a credit limit of $10,000 and a cash limit of $2,000. This means you can charge purchase on your card up to $10,000… but your card can only advance cash to you up to $2,000.
Tapping into your cash line can include transaction such as withdrawing cash from the ATM with your credit card, and of course, using convenience/cash advance checks.
To make things even more clear, cash advance is basically someone letting you borrow cold, hard cash—totally different than a simple credit card purchase!
Ridiculously High Interest Rate
Convenience and cash advance checks comes with usury-level interest rate. Expect rates beyond 20%. These rates are usually always higher than your regular purchase rate with your credit card. There is absolutely no reason to use a convenience check over a regular purchase with the credit card. Even if your purchase interest rate is on par with the cash advance rate, you should still stay clear of these checks.
Enough Fees to Shake a Stick At
Convenience checks from credit card usually comes with a hefty transaction fee. Fees ranges in 3-5% of your transaction. Example, the particular convenience check in your hand has a transaction fee of 5% with a $50 minimum and no maximum(!). If you use just $100, the fee would be the minimum of $50. Your transaction just went up 50%.
Change the amount to $5,000 and the fee would be $150 because there are no maximum limit to the transaction fees. Most cash advance checks will come with a maximum fee in the range of $75—still a ridiculous price.
Absolutely No Grace Period
In credit cards, grace period is the period where you can pay back your balance without incurring finance charges, as long as some previous conditions are met (e.g., paid balance in full the previous month). Without grace period, I would close all my credit cards account, cut up the cards and—you guessed it—burn them up.
Convenience and cash advance checks do NOT have grace period. The minute you deposit that check and its processed, interest will start accumulating right away. Paying in full when the bill comes will still result in finance charges.
Can’t Pay It Off Even If You Want To
If you made the mistake on using convenience check and you already have a balance on your credit card, unfortunately, you wouldn’t be able to pay off the high-interest check even if you want to.
In every credit card issued, the payment is always applied toward the lowest interest rate transaction first. This means that if you have a balance on your credit card for $1,000 at 10%, and you use a $1,000 convenience check at 20%, the payment you make for $1,000 will go towards the 10% transaction first, while the other $1,000 at 20% will sit around happily, accumulating interest.
Just Burn Them, Please
There are a few articles out there suggesting you to scrutinize the convenience check terms and conditions carefully to make sure you don’t incur any unnecessary charges. Wrong. Just stay clear of them. If you’re not into burning things up, a careful shredding of these checks would be fine too—especially because these checks are lacking in security and can easily be used by others.
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August 24th, 2006 at 6:15 pm
Maybe I live on the wild side or something but I’ve used convenience checks for a great many things, always with good luck. It’s not for everyone, but if you’re anal retentive, like me, you can make it work.
My most recent convenience check was for my car. http://www.moneystuffed.com/2006/07/car-financing-with-credit-card/
August 25th, 2006 at 1:55 am
I use convenience check when it is 0% apr for 12 months!! It’s like borrow money for FREE!! yeah that’s the only time I use it but I agree with what you said. It is like the highway robbery!
August 25th, 2006 at 5:25 am
ah I think I confuse things a bit w/ the term convenience check. what I meant specifically are cash advance convenience checks, these checks are drawn from your cash line in the credit card. they are a clear difference from balance transfer check.
the cash line of the credit card is a line of credit within your credit limit, and it’s usually of a lower amount than your total credit limit. utilizing the cash line is very expensive. doing things such as using cash advance convenience check, withdrawing cash from ATM via your credit card will tap into that cash line.. which is a different type of transaction than purchases and balance transfer.
Alisa’s 0% for 12 months is definitely a balance transfer check, though some creditors do term it convenience check.
I couldn’t tell from your post Liz, but what you used was most likely a balance transfer check too. I highly doubt it’s a cash advance convenience check, since they’re hardly fixed rate, especially for the life of balance. That’s a trait of balance transfer checks.
Anyway my fault for not clearing it up in the post, thanks for leaving the comments because now I realize I should amend the post a bit!
August 25th, 2006 at 10:10 am
Here’s an easy way to stop the madness:
1. Call your credit card company (I have Chase, too).
2. Tell them to add you to their do not solicit list.
3. Tell them to not mail any more convience checks.
4. Sign up for on-line account management.
You won’t receive any more checks. The idea that there are checks sitting in my mailbox that would be worth $10,000 to anyone strolling by is just ridiculous. So tell them to stop sending them, and they will.
August 27th, 2006 at 8:55 am
Shredder. I take mine to work and toss them in the giant cross cut shredder. It’s very satisfying to watch them shred into tiny bits.
August 27th, 2006 at 5:37 pm
The credit card companies term their checks “convenience” checks, but they intend them for balance transfers or big purchases you simply can’t resist. I wrote the check out to myself. I’ve talked to a couple of credit card companies about this and it’s interesting. Sometimes the difference is in writing the check out for “cash” vs. a name. If I wrote it out for cash, I’d get hit with the outrageous rate you speak of. They told me to write it out to myself and I’d be fine and I was.
September 3rd, 2006 at 1:25 pm
I’ve used “convenience” checks for years. If you watch
yourself they, like credit cards, can be great tools. If you are foolish they are shovels digging your hole deeper. I owe about $27k in convenience checks, it is sitting in a money market collecting 5.15%. They lent it to me at 0%, no fees, I lent it right back to them at 5.15%, also no fees. Seems like a winner to me. I always cut up the card for that account so I can’t make a mistake and charge something.