Balance Transfers vs. Cash Advances: Which Is Better?

Balance transfers often make more sense if you want to save on interest and fees.

Woman holding a phone in one hand and a credit card in the other
Updated July 11, 2024
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A balance transfer is transferring a balance from one credit card to another. We 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.

A cash advance is when you borrow cash against your credit card’s available credit line. We generally don’t think cash advances make sense because of high interest rates and fees.

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

In this article

Key takeaways

  • We recommend doing a balance transfer if it’s going to help you pay off existing credit card debt. But you have to determine whether you’ll save enough on interest to warrant paying a credit card balance transfer fee.
  • A cash advance doesn’t make sense in most situations because of high fees and interest rates. There are often better alternatives available, such as using a debit card to withdraw cash or simply paying with credit.
  • Both balance transfer and cash advance fees tend to range from 3% to 5%. The difference is cash advance balances start accruing interest immediately, while balance transfer cards provide 0% intro APR periods where no interest accrues.

Balance transfers vs. cash advances

Balance transfers Cash advances
How to request In person, online, or over the phone ATM, in person, or online
When to use To pay off and/or consolidate existing debt In an emergency
Fees 3% to 5% 3% to 5%

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, you could 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.

Tip
Keep in mind that most balance transfers charge a balance transfer fee that typically ranges from 3% to 5% of the amount being transferred. It’s important to calculate whether you’ll save enough on interest to justify paying a balance transfer fee. You also can’t transfer a balance (fee included) that’s higher than your credit limit.

Pros and cons of balance transfers

Pros
  • Could help you pay off debt
  • Could help lower your overall interest
  • Could help you consolidate your debt in one place
Cons
  • Balance transfer fees
  • Might require good or excellent credit
  • Hard inquiry from new credit card

The primary reason to do a balance transfer is to help 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.

You have to consider how much the balance transfer fee is going to cost and how much interest you might be able to save. Free balance transfer calculators online can 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. If consolidating your debt gives you the motivation to pay it off, a balance transfer could be a positive move.

What is a cash advance?

A cash advance is borrowing 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 do 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 you 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.

Tip
Keep in mind that certain types of credit card purchases can be treated as cash advances. It varies by credit card issuer, but these purchases could include PayPal or Venmo money transfers, lottery tickets, casino chips, foreign currency, new bank deposits, gift cards, and more.

Pros and cons of cash advances

Pros
  • Can provide physical cash in an emergency
Cons
  • High interest rates
  • Cash advance fees
  • Immediately starts accruing interest

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

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, we 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.

Paying off a cash advance with a balance transfer

You might find yourself in a situation where 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.

Example 1 Example 2
Debt $10,000 $10,500 (includes $500 balance transfer fee)
APR 18% 0% intro APR for 18 months, then 18%
Minimum payment ~$250 ~$250
Time to pay off debt 342 months 45 months
Total interest/fees $12,440.98 $1,724.73

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 goes down for both examples.

FAQ

Is a balance transfer the same as a cash advance?

No, a balance transfer is when you transfer a balance from one credit card account to another, and a cash advance is when you borrow physical cash against your credit card’s available credit line. Balance transfers are often used to pay down existing debt, while cash advances are used in emergencies where you need actual cash.

Do balance transfers hurt your credit score?

Balance transfers themselves have no direct impact on your credit score. However, a balance transfer could hurt your credit score by opening a new balance transfer credit card and having a high credit utilization.

What is the downside of a balance transfer?

The downside of a balance transfer is that you have to pay a balance transfer fee that typically ranges from 3% to 5% of the transferred balance. For example, if a card has a 5% balance transfer fee and you want to transfer $10,000, the balance transfer fee would be $500.

Bottom line

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

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

Most cards allow you to do balance transfers, but the best balance transfer cards tend to make the most sense. These cards provide 0% intro APR offers, so you can avoid interest charges on transferred balances for a certain amount of time.

Extra Long Intro APR on Purchases & Qualifying Balance Transfers

4.9

Wells Fargo Reflect® Card

Current Offer

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

Annual Fee

$0

Benefits and Drawbacks
Card Details

Author Details

Ben Walker, CEPF, CFEI®

Ben Walker, CEPF, CFEI®, is credit cards specialist. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.