Pain lingers from high rate on cash advance

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Dear Debt Adviser,
Can I request my credit card company to let me pay off the part of the balance that has the highest interest rate FIRST? To be more specific, my purchase rate is 11.9 percent, but my checking overdraft tied to my credit card is the cash advance rate of 23.49 percent — not exactly what I would call overdraft “protection.” I would like to pay the $500 that’s being charged 23.49 percent before I pay off the $7,000 that’s being charged 11.9 percent, naturally. Any insight?
— Mike C.

Dear Mike,
Congratulations for noticing the difference! Many people just pay the minimum in the box each month and never question how it was arrived at. However, I’m afraid you may be too late. You may certainly request this of your credit card company, but I’d be surprised if the company will agree. If you read the fine print on the terms of your card, you will find a section regarding this very issue.

Cash advances almost always carry a monster interest rate. It is a more expensive process for your card issuer and carries a somewhat higher-than-average risk in the case of a default. For example, although the commercials say a diamond is forever, they can repossess the diamond engagement ring that was bought with credit, but cash just seems to have a way of disappearing — forever. Thus they charge a higher rate.

If you have a really great relationship with the card issuer, they might see things your way, but I wouldn’t hold my breath. A variation of this is to tell your current creditor you plan to transfer the balance to someone else. This may give you some leverage in working out a more favorable option for repayment.

After that, you really only have two options. You can aggressively pay down the card, keeping the same terms — this means you need to work on paying off $7,000 as soon as possible. Or you can follow through and try to transfer the entire balance to another card with a more favorable interest rate.

However, let me rap you across the knuckles with a roll of coins for using a credit card for overdraft protection in the first place. Your best course of action is to cover overdrafts from your savings account. However with $7,000 on a credit card my guess is you are short in that department! So, first things first — stop charging now! In order to climb out you will have to begin to live below your means so that you are not using credit to get by.

If you choose to go the route of another card, be aware that you may not find one card that will accept the entire balance. Then you must decide if you want to transfer what you can and try for another, but each time you apply for a new card your credit score is being hit with another inquiry, which could trigger a decrease in your overall score. If you do this, don’t close your existing account — that will lower your score even more. This could even lead to having your 11.9 percent interest rate raised, making it even harder to pay off what you now owe.

A much better alternative to overdraft protection is an emergency savings cushion. I know I say this all the time, but having the cash on hand to deal with financial bumps in life is the best protection. Three to six months of bare bones living expenses (not income) is the goal, but you don’t have to do it all at once. You can start small; the trick is to be consistent. You’ll be surprised, in a good way, how quickly your savings balances will rise. Habits take a while to develop, and this is especially true of the ones that are good for you.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of ” Credit Repair Kit for Dummies.” Visit MMI for additional debt advice or to ask a question of the Debt Adviser, go to the ” Ask the Experts” page and select “debt” as the topic.