Why you should NEVER use your credit card to withdraw cash from an ATM

The creators of Hiver Academy, an organization meant to build financial literacy, have warned people to not use their credit cards at ATMs to withdraw cash. 

Founders Amanda and Siobhán, who met after finishing their undergraduate degree, began their new online course in an effort to help people feel confident in their financials and learn best practices.

In a TikTok posted in April that is now going viral, Amanda dissuaded the duo's 610,000 followers from ever taking a cash advance on a credit card from any bank. 

A cash advance is defined as a short-term loan from a credit card issuer that allows the cardholder to borrow money against their credit line. 

But while taking a cash advance on a points-based credit card may seem like a win-win situation, it is actually one of the worst financial decisions a holder could make. 

In a TikTok posted in April that is now going viral, Hiver Academy's Amanda dissuaded the duo's 610,000 followers from ever taking a cash advance on a credit card from any bank

Amanda recounted an incident that happened with her friend over a cash advance and said: 'They were having to pay their rent in cash and they thought, "Oh my gosh, like instead of going to an ATM using my debit card, I’ll use my credit card ’cause then I get all these points, and then I’ll just pay it off at the end of the month".'

She noted that a little while later, her friend noticed at their credit card statements had an extremely high interest charges. 

'They’re like, "Why am I getting such high interest charges? This is weird. I’m paying my credit card off every month",' Amanda recalled.

In the end, she explained and advised viewers: 'When you buy something with a credit card, you don’t pay any interest unless you don’t pay off your credit card whenever your bill is due. 

'But with a cash advance, when you’ve taken money out, like actual cash out from your credit card, that interest starts adding up every single day and it is huge.'

Amanda also noted that the only time a cardholder should withdraw funds from a credit card is in the case of an emergency. 

A cash advance is defined as a short-term loan from a credit card issuer that allows the cardholder to borrow money against their credit line

To avoid such hidden costs, banking companies advise cardholders to understand what kind of transaction fees they are being subjected to and pay off all interest as fast as they can

According to Jason Gaughan, SVP, Consumer Card Products at Bank of America, a credit card company essentially loans an account owner money when they take on a cash advance and as a result, have to pay a higher interest than what they would usually pay. 

'Let's say you go to your bank or to an ATM and use your credit card to take out money. While the process may seem similar to withdrawing money with a debit card, what you’re really doing is taking a cash advance on your credit card. 

'Unlike a debit card withdrawal, in which you’re accessing your own funds, with a cash advance your credit card company is essentially lending you money and charging your account. 

'The charge will likely cost you; cash advances generally have a transaction fee and a higher annual percentage rate (APR). Additionally, there’s usually a limit on how much cash you can get an advance on,' the expert said. 

To avoid such hidden costs, banking companies advise cardholders to understand what kind of transaction fees they are being subjected to and pay off all interest as fast as they can.