When your credit card statement shows up in your mailbox, there may be a little something extra included. Your credit card company may also send along convenience checks, which you can use the same way you would any other check. It seems like a perk, but convenience checks can be a real inconvenience if you use them without knowing how they work.
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What Is a Credit Card Convenience Check?
Convenience checks, which can also be called credit card checks, are sent out to selected customers. These checks look like any other type of personal check; there's a space to write out the check to a payee, a section for the amount and a place to sign.
There's also an account number listed at the bottom, similar to the way your personal checks include your bank's routing number and your account number. But here's the key difference: When you write a personal check, the money you're paying out is withdrawn from your checking account. When you write a convenience check, the money is being drawn from your credit card limit. The limit for convenience checks may be lower than your purchase limit.
Convenience checks typically have an expiration date. But you might be wondering why your credit card company would send you convenience checks if you can already make purchases with your card. Primarily, they're a tool credit card companies use to encourage people to spend, says Ben Woolsey, director of marketing at credit education site CreditSoup.com.
"They are very profitable, as they typically charge interest at the higher cash credit line rate and because there is no grace period with these checks," Woolsey says.
In other words, the convenience you enjoy with credit card checks may come at a high cost.
What Convenience Checks Can Be Used For
Convenience checks offer flexibility, in that you can use them to fill virtually any financial need. For example, you might use a credit card check to:
-- Pay your monthly bills
-- Buy new appliances or another large item
-- Pay off debt
-- Make a purchase at a merchant that doesn't accept credit cards
In a pinch, a convenience check can also be a quick source of cash, says Eric Solis, founder and CEO of MovoCash, a financial technology company that produces an e-wallet app. "It's essentially a cash advance accessible with a signature," Solis says.
That could be helpful if you need cash to cover an emergency expense, such as a vet bill or a car repair. Essentially, you're taking a cash advance against your credit card, rather than taking cash from savings or getting a personal loan.
Convenience checks can also be used for a different type of expense: Credit card companies can mail out balance transfer checks with your statement that allow you to pay off an existing balance on another credit card, ideally at a lower or 0% annual percentage rate. Balance transfer convenience checks are designed for consolidating debt, not spending.
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How Much Do Convenience Checks Cost?
Convenience checks can potentially be an expensive way to make purchases or get access to cash. There are two different costs associated with convenience checks: the APR and transaction fee.
Convenience checks, whether you use them to pay bills, buy something or write them out to cash, are generally treated as a cash advance by the credit card company. That means that unless your convenience checks come with a promotional rate, the cash advance APR automatically applies.
The typical APR for cash advances is higher than the average purchase APR. And unlike regular purchases, cash advances have no grace period. Interest starts accruing on the balance immediately.
That doesn't include the transaction fee your credit card company may charge. If the checks are treated as cash advances, you may pay a cash advance fee, which is usually 2% to 5% of the advance amount, with a $5 to $10 minimum. On a $1,000 advance, the fee could be as much as $50. And cash advance fees are tacked on to your balance, so you'll pay interest on it as well.
When Does Using a Credit Card Check Make Sense?
Solis says convenience checks have some attractive features. They can make it easy to transfer a balance from a high interest rate card to one with a low rate, for example. And using them to consolidate debt can help you simplify your monthly budget.
If you're using a convenience check to make purchases, however, that could open you up to more debt. The higher APR and fees associated with incurring that debt takes away some of the appeal of using credit card checks.
In terms of when it makes sense to use them, the cost alone typically makes convenience checks a better choice for emergencies, rather than everyday spending. And even then, you should still consider whether there are cheaper ways to get access to cash.
Alternatives to Credit Card Convenience Checks
If you need cash to cover an emergency expense or make a purchase, the best way to pay while avoiding interest is using your checking account or savings. When that's not an option, there are other ways to pay that could be less expensive than convenience checks.
For example, you could open a new credit card account that offers a 0% promotional APR on purchases. This would only work if you can make the purchase with a credit card. If you take out a cash advance on a 0% card, you likely will still face a fee and a higher APR. But if you need to pay a medical bill, for example, or put a new roof on your house, 0% financing on credit card purchases for 12, 15 or 18 months could help you pay for it without shelling out big bucks for interest.
A personal loan may be another option if you have good credit and are able to qualify. While personal loans charge interest, the rates may be much lower compared with what you'd get with a convenience check or standard cash advance. And the amount you could borrow might be higher than what you could withdraw with a convenience check.
A third alternative is borrowing cash from friends and family. Your parents, siblings or best friend may be willing to lend you money with no interest, fees or other strings attached. Just be sure you can repay what you borrow, and get it in writing first. Getting a loan at low or no interest may not be worth it if it costs you a relationship because you can't pay it back.
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Read the Fine Print Carefully on Convenience Checks
If you do decide to use the convenience checks your credit card company sends, make sure you know what that involves first. Specifically:
-- Verify whether check transactions are classified as cash advances or purchases.
-- If they're cash advances, review the cash advance APR and transaction fee.
-- Estimate how quickly you'll be able to repay a convenience check transaction to minimize interest charges.
-- If there's a promotional rate attached, be aware of when that rate expires and what the regular APR is thereafter.
-- Check that the limit you have available is large enough to cover your needs.
Also, consider how using convenience checks could affect your credit score. Anything you spend or withdraw as cash is added to your credit card balance. One of the key factors in credit score calculations is credit utilization, or how much debt you're carrying relative to your credit limit. If using a convenience check would put you closer to maxing out your credit line, that could cause your credit scores to lose points.
Bottom line? The more you know about convenience checks, the better you're able to make a smart decision about how to use them.
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