Learning to use credit card cash advance can be handy when you need short-term liquidity. Indeed, signup and promotional offers often allow you to borrow money, in the form of a balance transfer or cash advance, for periods of 6 to 12 months without interest or at a low rate.
Then, if you can use that money to generate more, fund your projects, pay off another debt, etc. However, this must be approached cautiously because you must respect the terms and conditions; otherwise, the benefits won’t outweigh.
Credit Card Cash Advances - How does it work?
While we advise consumers just to employ credit cards as a form of payment, some promotions can be a valuable resource in order to utilize balance transfers and cash advances if used wisely.
These balance transfers and cash advances promotions frequently take the following formats:
- 0% interest for a fixed number of months for a 1% transfer fee
- 0.99% interest for a determined period with a 0% transfer fee
Each deal has a different balance transfer term, interest rate, and transfer cost. Additionally, you can benefit from these deals as a brand-new customer or get one to activate as an existing consumer.
For example, new clients can sign up for the Scotiabank® Value VISA card, which currently offers 0% interest for six months at a 1% transfer fee.
Indeed, the description of the offer can be read as follows:
The Introductory 0% Balance Transfer Rate Offer (the “Rate Offer”) applies only to eligible cash advances (including balance transfers and cash-like transactions) (collectively “Cash Advances”).
Therefore, you can either employ it as a balance transfer to pay off another credit card or request it as a cheque as a cash advance.
Cash advances are used to benefit from reduced interest rates while your money is worth more elsewhere. This is an excellent approach to cut costs when appropriately exploited; of course, you need to reimburse that amount when due!
Credit Card Cash Advances - Saving accounts
Although six months is not a lengthy period to invest in the stock market, we frequently have bonus interest promotions for savings accounts, such as this one:
In fact, I received a 5% savings rate offer on new deposits in my Tangerine Savings Account in February! The promotional rate was supposed to end in June, but it is currently being extended until September.
In the meantime, I can use liquidity from my credit card cash advances to earn a little bit of passive income; with it being put into a savings account, there is no risk of hindering the capital, so I can return the money when it’s due.
Here’s a simplified illustration of what a $15,000 cash advance with no interest can do when parked at 5% in a Savings Account:
When we compare this cash advance manoeuvre with a similar return you can get with other great cashback credit card offers, new clients can usually earn 10% (up to 200$) on the following popular products.
The difference is that, by using credit card cash advances, you don’t need to spend any money earning that amount as cashback!
Credit Card Cash Advances - Paying off another debt
If you’ve recently got a new place, you may have to face a significant number of renovations, moving and furnishing costs. Indeed, obtaining what you need to settle down may be pricey and you may have to resort into borrowing money if you can’t dip into your savings.
Instead of turning to your credit line at a high prime rate, why not take advantage of credit card cash advances at 0% to cover your purchases temporally?
When you must return the amount after the promotional period is over, you can fall back on your credit line since the prime rate will probably less expensive than credit card fees. Remember that you have time to earn the money to reimburse (totally or partially) your costs while you are sitting on the cash advance offer!
In addition, in the meantime, you can also earn credit card rewards on your purchases. For example, we cleared the balance on the World Elite Mastercard from National Bank bill when the cash advance cheque was deposited by making the customary full payment. There were four reasons for doing it that way:
- 0% interest on $5,000 plus a $50 transfer fee, saving us from using our home equity credit line, which had a higher interest rate.
- We are able to put $5,000 away or invest it at our convenience during the same period.
- Take advantage of our credit card purchase insurance to get an extended appliance warranty.
- Helping us meet the minimum required spending on that card quickly to earn points for our next trip!
Similarly, if you were carrying another credit card debt and paying a higher fee, using a cash advance or balance transfer can help you breathe and buy you some time to clear your debt.
Credit Card Cash Advances - Registered Savings Account
Suppose you have space available in your Registered Retirement Savings Plan (RRSP). In that case, you can use credit card cash advances to contribute and benefit from a tax return or generous government contributions.
An important note about employing this strategy is that once the money is put into your RRSP, you cannot withdraw it at leisure unlike ordinary saving accounts. This means you are simply using credit cash advances to buy yourself some time to earn the money organically.
Timing and evaluating your earning/saving potential are therefore crucial. For example, if you use the cash advance from the Scotiabank® Value VISA card in your RRSP in October 2023, you will:
- Benefit from 0% interest for six months
- Benefit from 6 months to earn the cash advance amount from your job (so you can reimburse the money when due).
- Benefit from growth and compound interest as soon as you contribute.
- Receive a tax return in April 2024
As we can see, in this case, you can use credit card cash advances to buy time and not miss that March 1st deadline while earning some passive income from the moment you inject the money into your RRSP account!
Borrowing to maximize your RRSP and get an income tax return is relatively common; credit card cash advance is just another way of loaning money.
The same can be done with maximizing your kids’ RESP or your FHSA, which are also time-sensitive, while you find other ways to earn money, such as with your job.
Using credit card cash advances can be a powerful tool. Still, you must remain cautious not to overspend as it’s not your money and to respect the terms and conditions so you don’t incur any undesirable penalties or fees. Remember that it’s borrowed money; you MUST pay it back.
When employed right, you can benefit from some additional passive income, more points or government benefits!