Balance Transfers vs. Cash Advances: Which Is Better?

If you find yourself in debt or dealing with an emergency in which you need cash quickly, you may be considering a few different options like balance transfers or cash advances. But what are these tools, and which one is better to deal with your situation?

A balance transfer is when you transfer a balance from one credit card to another. In contrast, a cash advance is when you borrow cash against your credit card’s available credit line.

Generally, I think balance transfers make sense if you want to lower your overall interest rate or organize your debt in one place to make it easier for you to track. I generally don’t recommend cash advances because of high interest rates and fees, but there may be times when they make sense to use.

Let’s compare balance transfers and cash advances to see how they work and when you might use each.

Balance transfers vs. cash advances

What is a balance transfer?

A balance transfer is when you transfer a balance from one credit product to another. In most cases, balance transfers refer to transferring a balance from one credit card account to another.

You might do a balance transfer to help save money on interest. For example, let’s say you have a credit card with a balance and a 15% interest rate. If you transfer that balance to a card with a 0% introductory rate, you could avoid accruing interest during the introductory period.

That gives you some time to pay off your debt without worrying about interest. To find cards with 0% intro APR offers, check out the best 0% intro APR credit cards.

Pros and cons of balance transfers

The primary reason I would recommend making a balance transfer is if you know it will help you pay off debt and save money. But that doesn’t mean a balance transfer is going to help you reach those goals in every situation, so I would also make sure you have a comprehensive plan for paying off your debt.

You have to consider how much the balance transfer fee is going to cost and how much interest you might be able to save. I would suggest using a free online balance transfer calculator to help with this. If you calculate that the amount of interest you’ll save is higher than the balance transfer fee, a balance transfer is likely worth it.

But if the balance transfer fee amount outweighs how much interest you’ll save, the balance transfer likely isn’t worth it. One exception is if you’re doing the balance transfer to organize your debt in one place.

I am a very visual person, and being able to see all of my debt in one place would probably be very helpful for me. If you’re like me, and consolidating your debt would give you the motivation to pay it off, a balance transfer could be a good move.

What is a cash advance?

A cash advance is when you borrow money, often by withdrawing money from an ATM, against your credit card’s available credit line.

With a credit card, you’re already borrowing money whenever you make a purchase on credit. But with a cash advance, you’re turning some of that credit into actual cash.

The primary reason you might take out a cash advance is if you need physical cash in an emergency, like if you can’t withdraw cash from your bank account using a debit card or you can’t use credit to make a purchase.

The reason I would typically only use cash advances in emergencies is that they have high interest rates (often separate and higher than your credit card interest rate for purchases) that start accruing immediately and can come with fees.

For example, let’s say you take out a cash advance of $1,000 with a 30% cash advance APR and a 5% cash advance fee ($1,000 x 0.05 = $50 cash advance fee). That’s a total of $1,050 that could immediately start accruing interest.

You would owe at least $315 ($1,050 x 0.30 = $315) in interest over the course of a year, though likely more with compound interest. That’s about $0.86 per day ($315/365 = $0.86301) in interest.

Pros and cons of cash advances

If you compare credit cards, most allow cash advances. However, that doesn’t mean it’s a good idea to actually use one.

Cash advances come with high interest rates that are separate from your card’s standard interest rate. You might also be on the hook for a cash advance fee.

That’s enough to discourage me from taking one out. And if that wasn’t enough, cash advance interest doesn’t have a grace period like regular credit card purchases have. Interest starts accruing immediately on your cash advance balance.

If you can, I recommend staying away from cash advances, as the benefits don’t typically outweigh the drawbacks. But if it’s an emergency situation and you need physical cash for some reason, a cash advance could make sense. I would recommend having a plan in place to pay it off as quickly as possible.

Paying off a cash advance with a balance transfer

You might find yourself in a situation in which you needed a cash advance for quick money but are now struggling to pay off your cash advance balance with its high interest rate. In this scenario, it’s possible to pay off your cash advance with a balance transfer.

If you open a balance transfer card with a balance transfer offer, you could transfer your cash advance balance to your new card and take some time to pay off your balance — without having to worry about a ridiculously high interest rate (at least for the length of your introductory APR period).

Keep in mind that you’ll want to calculate whether the amount you might save in interest is greater than how much you have to pay in balance transfer fees.

Here’s a comparison of trying to pay off debt with a standard interest rate versus doing a balance transfer to a card with an intro APR offer.

From this simple example, using a balance transfer card with a decent intro APR offer could help you shave off nearly 300 months of payments and save over $10,000 in interest. That’s assuming you’re making the minimum payment each month. If you make higher than the minimum payment, the time to pay off your debt would go down for both examples.

FAQs

Bottom line

Which is the better option in the balance transfer vs. cash advance debate? Overall, I prefer balance transfers. But these are two tools designed for different purposes.

Balance transfers are generally best used to save money on interest and pay off existing debt. I would only recommend using cash advances as last-resort options in true emergencies where you need physical cash.

Extra Long Intro APR on Purchases & Qualifying Balance Transfers

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Rates and fees

Current Offer

Benefit from a long introductory APR period on purchases and qualifying balance transfers

Annual Fee

$0

Benefits and Drawbacks

Benefits

• 0% intro APR for 21 months from account opening on qualifying balance transfers, then 17.49%, 23.99%, or 29.24% Variable APR
• Up to $600 Cell phone protection when you pay for the cell phone with your card (subject to a $25 deductible)
• $0 annual fee
• The ongoing APR may still be competitive compared to other cards

Drawbacks

• No rewards for spending
• 3% foreign transaction fee
• 5%, min: $5 balance transfer fee
• Limited list of card perks

Card Details

• Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
• 0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 17.49%, 23.99%, or 29.24% variable APR thereafter; balance transfers made within 120 days qualify for the intro rate, BT fee of 5%, min: $5.
• $0 Annual Fee.
• Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
• Through My Wells Fargo Deals, you can get access to personalized deals from a variety of merchants. It's an easy way to earn cash back as an account credit when you shop, dine, or enjoy an experience simply by using an eligible Wells Fargo credit card.