Need to transfer money but you don’t have cash in the bank? Sooner or later someone will suggest that you wire money from your credit card. It is easy to do, and you can move money around the world. But before you provide those numbers, see what you get yourself in and evaluate the alternatives.
Transfer money via Credit Card
The term transfer is used in various ways.
- Bank Wire Transfer: Wire transfers traditionally go through banks. These are the same day’s transfer from one account to another, and they are popular for transactions like home purchases. To complete a thread, you must provide the bank details of the recipient, and you may need to provide a paper form (although small forwarding requests might be available online).
- Money Transfer: This can mean several things, but the basic idea is that you send money electronically, whether it is a traditional “transfer” or not. The funds would even be available to the recipient on the same day within a few minutes. Western Union, MoneyGram, and others offer this type of service, and you can set up transfers online or over the phone (the recipient can be identified by an email address, phone number or name). Sometimes these transfers take 2-3 business days while they pass through the ACH network.
No matter what method you use, you will need a cash advance if you plan to fund the transfer with your credit card. An advance offers “free and clear” money available for immediate dispatch.
- Rates: Cash advances come with fees. Most credit card companies charge a percentage of the transaction amount (with a minimum of $ 10 or more) or a fixed amount, which is larger. Fees effectively increase the price of what you pay for, so take the total cost into account when making decisions.
- Interest Costs: Cash advances on your credit card are expensive. The interest charged on the advances is usually higher than the interest on funds that come from purchases (expect a rate of at least 25 percent). Moreover, there is no grace period on cash advances, so you’ll pay interest charges even if you pay off your card before the end of your statement cycle.
- Your Credit: When you borrow against your credit card, you run the risk of damaging your credit – at least temporarily. Large cash advances can use the majority of your available credit limit, signaling that you might be in financial trouble. If you are planning to make a major purchase in the near future (at home or vehicle, for example), a lower credit score makes it harder to borrow. Avoid far beyond what your credit card and pay off the debt immediately.
- How to Get a Cash Advance: If you are planning on the wire of money using a bank, you need to get money in your bank account. You can do this by visiting a counter in your bank’s branch and requesting a cash advance (moving the proceeds to your bank account), or you can simply withdraw money from an ATM and the money in your account deposit. If you use a money transfer service, the cash advance happens automatically as you go through the steps to complete a transfer.
Remember, if you use a credit card to fund a transfer, you are borrowing money to make the transfer. As a result, you have to pay a high-interest rate on the money you borrow, and the fees will be added to your loan balance, reducing the total amount of interest that you pay. But there are alternatives.
Risks of Wire Transfers
Unlike the purchases on your card, cash advances cannot be reversed, reducing the risk for your bank or money transfer service. They are only willing to make an irreversible transfer if they are more or less in control of the money. The recipient will be able to get the money immediately (in cash or by moving the money elsewhere), and there is no way to get the money back.
Only send money if you know where it is going, and if you trust the recipient. Different scams use transfers (or money transfer services), and scammers take advantage of misunderstandings about how these payments work. Most people think that their bank or Western Union can help if there is a problem, but the money is usually gone forever.
Alternatives for wiring your credit card
Because of the risks and costs, there may be better ways to send money. Depending on the situation and whether you need to borrow money, some of the options below might be a better fit.
- The wire from your bank account: If you don’t have to borrow and trust your recipient (you know it’s not a scam), just send money from your bank account. There are different ways to do this, including using a standard transfer.
- Pay with a debit card: Online sites usually ask for a “credit card” number, but you can use a debit card in most cases. Debit cards pull money from your bank account instead of creating a loan, so you’ll avoid cash advance and interest charges. Just make sure you know who you are giving your card number to.
- Money order or Cashier’s checks: There are different ways to send “guaranteed” funds. In addition to the transfers, cashier checks are considered to be very safe (as long as the check is not a fake). The issuing bank guarantees cashier’s checks so that they cannot bounce. Money orders are also an option in some situations.
- Payment Apps: If you know the person sending your money to (a friend or family member, for example), try a free or cheap payment service. Square Cash App moves money from your bank account directly to check the recipient’s account – using your debit cards – for free. PayPal is available for international payments, and there are several other options that can meet your needs.
- If you need to borrow money: Your credit card is not the only way to borrow. Assuming you really need to borrow, ask your bank about a personal loan (or other options available) for drumming up the money. Online lenders and peer-to-peer loans are also a cheap option, especially if you have a few days to work with. Credit cards are probably the fastest option, but you will have to pay a premium for that speed.
- Convenience Checks: Getting a cash advance from a counter or ATM is expensive. You might be able to pay less if you keep an eye out for special offers from your credit card company. With ease checks or balance transfer offers, you can write a check yourself and use the money any way you want. Although you may still have to pay, there is a good chance that the costs will be lower, and as a bonus, you can get a lower interest rate (for a limited time).
- Standard Credit Card Payment: Another option is to simply pay with a credit card (assuming being accepted). Credit cards can be used internationally, and you will get the consumer protection benefits if you use your card to make a purchase immediately. PayPal is a similar option and it is free to make purchases with PayPal. For some purchases, PayPal will even lend you money (via PayPal Credit).
If none of the options to choose will work, it may be useful to use your credit card and wire money, but only in an emergency.
Save the expenses instead
Borrowing money on credit cards is not sustainable. Ultimately, high-interest rates and steep reimbursements can drag you into a spiral of debt. You will spend more money on maintaining the debt every month than you move towards the debt itself.
To prevent borrowing money, budget for necessary expenses and building an emergency fund. Ideally, you have enough to cover three to six months worth the cost of living (or more, if you prefer to be conservative). Emergency funds must be somewhere safe and accessible, such as a savings or money market account. Avoid robbing the fund, and when surprises come, you won’t have to incur substantial costs.
Sometimes borrowing is inevitable. If you like having a backup plan, you can take advantage of keeping a credit line open. A line of credit is a pool of money that is available for borrowing, but you don’t actually borrow until you need to. The line of credit must be inexpensive to maintain because you only pay interest if you borrow money (or never).