It seems that every few weeks, I get a letter in the mail from one of my credit card companies with convenience checks inside. Those checks are a tool that lets you put a cash advance on your credit line, which is bad news for most of us. When I worked in banking, we would get checks like these every day written to max out a credit line deposited into a checking account. I couldn't believe people would consider that!
Credit Card Interest Rates
The cash you take out using a convenience check begins to charge you interest at your credit card rate, which can average over 20% APY for some people. Why would you ever do that for extra cash? Unless you can invest it with a guaranteed rate of return above that 20%, there is no reason to pay that kind of interest.
If you are in debt, make sure to budget and plan to live within your means. I paid off all of my student loans in two years by keeping spending tight and working hard. I am not special, I just stuck to a plan and worked hard. You can do it to if you are having trouble paying off debt.
Cash Advance Fees
Some cards charge a cash advance fee if you decide to use the checks. While not all cards charge a fee, it is often about 2% up front. That is a 2% fee just for writing the check before interest even kicks in, which includes the fee in the compounding balance.
In a worst case scenario, it is best to just use the credit card, never use a cash advance on a credit card to pay for any purchase.
When you use them to withdraw from your credit line, you generally do not get the rewards associated with the account. I use all of my credit card rewards for things like free flights and hotel nights. Almost all credit cards give no rewards if the spending comes from a convenience check.
These checks can be a possible source of identity theft. Smart thieves know what these are, and know they can be used to tap into your credit card. While you are likely not going to be responsible for the charges, it is a headache to get fixed. Additionally, the thief gets you address and other personal information from the check which can be used for further identity theft in the future.
Avoid the Temptation
So why do the banks keep sending the checks? Temptation and convenience.
How easy would it be to take that check over to the store and buy a brand new 60″ flat screen TV? It would be as easy as doing it with you credit card, but the bank gets more money if you use the check, and that comes from your pocket. Millions of people are dumb enough to use the checks, so the banks will keep on sending them. However, before you get to the store, make a stop by the shredder to put the checks to rest.
Originally published April 5, 2010. Updated May 8, 2013. Image by dee & tula monstah / flickr