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Don't use your credit card to withdraw cash

Credit cards, without doubt, have become an essential part of a person's wallet. They not only help you to make cashless purchases with third parties but also enable you to withdraw cash.

Withdrawing cash through credit cards is a very convenient option in an emergency but it turns out be very costly if it is not repaid back quickly.

The transactions that one makes through a credit card are billed on a certain date of every month and are listed in a credit card statement that is sent by the issuer to the cardholder on a monthly basis.

This credit card bill has a certain due date by which the cardholder is expected to pay the minimum due or the total outstanding amount. The due date is generally a date that comes 21 days after the billing date and the period between the two dates -- billing date and due date -- is called the credit free period.

But if the total outstanding amount is not paid after the completion of the credit free period, an interest rate is charged on the total outstanding amount.

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Don't use your credit card to withdraw cash

However the story is different in case of cash withdrawal through credit cards. There is no credit free period that a cardholder can enjoy if s/he takes out cash using her/his credit card. In such a case, an interest starts accumulating immediately after the day in which the transaction is made.

Moreover a charge is levied on the cardholder for withdrawing cash through her/his credit card.

This charge differs from company to company and also depends on the type of the credit card used. Normally the banks charge around 2.75 per cent to 3 per cent per month on the withdrawal amount as the fee for providing this facility.

Don't use your credit card to withdraw cash

The interest rate on cash withdrawals and credit outstanding is mostly same for most credit card companies.

For instance if an individual withdraws Rs 20,000 on the 5th of a month and the bank generates the credit card statement on the 1st of every month, then an interest would be charged for 25 days.

This would be over and above the charge that is levied for withdrawing the cash.

Don't use your credit card to withdraw cash

Therefore, withdrawal of cash through a credit card turns out to be very expensive and it is advised to avoid making such a transaction unless you are in a real emergency that demands instant cash and in case you have made a withdrawal, try to repay it as soon as possible in order to avoid the interest that will start mounting up from day one of the withdrawal.

Also if you need money for a longer term, it is better to go in for a personal loan that can be easily availed from any lender at rates that are much cheaper than interest rates charged on cash withdrawal through a credit card.