Hero Images/Getty Images

Hero Images/Getty Images

A cash advance on your credit card can get you convenient access to funds, but you’ll pay a higher interest rate than you would when purchasing something with your credit card, and the interest clock starts running the second you get the funds.

It’s typical for a cash advance to also have a transaction fee; that fee will vary by card provider but averages about 5%.

RATE SEARCH: Find low interest rates on personal loans.

Digging out of debt is harder at higher interest rates

A credit card is a revolving line of credit. You make the required minimum payment on the card and you can spend years paying interest on the debt without putting much, if any, of a dent in the outstanding balance.

Paying north of 20% to borrow money, as it typically is for a cash advance, makes it harder to pay down the outstanding loan balance. Take a look at Bankrate’s credit card minimum payment calculator to get religion on the high cost of making the minimum payment.

No penalty for paying it off early

A personal loan, like the credit card, usually doesn’t have any collateral backing the loan. You’re charged interest from the time you close on the loan.

One difference is that it is an amortized loan, so the monthly loan payment covers both the interest expense and paying off the outstanding loan balance over the loan term.

There’s no prepayment penalty for making additional principal payments on the loan, but that’s true for the credit card, too.

Shopping for rates doesn’t ding your credit

The online personal loan lenders have made it consumer friendly to shop for personal loans.

Tell them how much you’re looking to borrow, how long you want to borrow it for, and what you’re going to use the money for, and they’ll tell you the interest rate without dinging your credit score.

Loan origination fees

Some personal lenders will have you pay a loan origination fee. Ask the lender if that’s the case with its loan. That fee goes into the annual percentage rate (APR) calculation, so you can compare loan interest rates across lenders.

Often, borrowers will finance that origination fee adding to the money they borrow from the lender.

Keep interest expense to a minimum

Borrowers always should try to minimize the interest costs when they borrow so more of their income can go toward repaying the debt, household expenses and investing for their future.

For most consumers, personal loans are a better source of funds than a cash advance from their credit card.

Have you ever taken a cash advance on your credit card?

Follow me on Twitter: @drdonsays

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