Why credit card cash is often a con

I’m writing about personal finance at the moment, and it’s becoming increasingly apparent that you should never, ever use a credit card to obtain cash. The devil is in the details, specifically the bit that says “allocation of payments” in your card’s terms and conditions.

Most people assume that when you make a payment to your credit card, it goes to whatever transaction happened first. That’s rarely the case. Payments are more likely to be allocated in this order:

First: interest and other charges
Second: purchases at lower interest rates, eg discounted purchases in an introductory periods, balance transfers
Third: purchases at normal interest rates from previous months
Fourth: new purchases
Fifth: cash advances

What that means in practice is that unless you clear your entire balance each month, any cash you take out will continue to accumulate interest. So if you spent £200 this month, £100 of which was a cash advance, and then every month from then on you run up £100 in spending and put £100 into your account, every single payment you make will have gone on interest and purchases, without going anywhere near the cash advance. As interest on cash advances can be as high as 29.9% APR and starts from the day you take the money, that’s a nice little earner for the card issuer. If you’re flat broke then by all means pay for stuff with plastic, but avoid ATMs like the plague.