A credit card is a marvelous thing, when you think about it. It lets you buy things you need before you can actually afford to pay for them. It’s safer to use than cash or checks, and you can use it when you’re away from home. Some cards offer rewards, and cater to students or people with no credit history. Credit cards also let you do business over the phone, by mail, and through the Internet.

And just like any other tool, your credit card must be handled with caution. Using it wrong can affect your credit report, raise your low rates, and harm your credit score. Perhaps most important: knowing when to use your credit card’s cash advances. Many credit cards give users access to potentially huge amounts of cash. What a temptation!

There are two common ways of drawing cash advances on credit cards. One is to use an ATM; the other is to use the check-like document that comes with your credit card bill each month. One credit card firm announced that its users borrowed more than $104 billion last year in cash advances alone — and that was 8 percent higher than the year before! Obviously, consumers are discovering just how easy it is to use credit cards as a source of cash.

And the credit card firms are more than happy to loan the money! It’s a useful service for the consumers, and the credit card companies make out like bandits! In almost every case, the interest rate on cash advances is much higher than the interest rate on purchases. The statement you get each month has plenty of fine print about how the different charges are calculated, but it can be confusing. When in doubt, call a customer service representative and ask to have everything explained. If you’re going to borrow cash, you need to know exactly what you’re in for.

When you buy something with a credit card, you’ve actually got something tangible — a new shirt, a DVD, or whatever. But when you use your credit card as an ATM card, withdrawing cash to use as you go about your daily business, you’re going to wind up paying a lot for that convenience. You have to repay it as soon as possible, because the longer it sits on your bill, the more the interest racks up.

Here’s an example. At one credit card company, if you borrow $500 as a cash advance, you’re charged 3% right off the bat as a “transaction fee.” (That’s $15 you’ll have to pay, and you haven’t even started yet!)  The interest rate on that $500 loan is 19.9%. Let’s say you manage to pay that $500 back four months later. You’ll wind up paying some $50 over and above the $500 you borrowed. And that’s if you come up with the money within four months! Most people take much longer to pay off their debts.

But the credit card companies don’t make it easy to pay off those cash advances. The small print usually says that when you make a payment to your credit card company, the use it first to pay off purchases made at the lower interest rate. Only if there’s part of the payment left over do they apply anything to the cash advances. For instance, let’s say you owe $2,000 on one card, $1,400 in purchases and a $600 cash advance. If you pay $200 every month, it will be seven months before you’ve even begun to pay off the cash advance. Everything you pay up to that point is going toward the $1,400 in purchases, so that the high-interest-rate cash advance can keep piling up interest charges.

You’re probably wondering: If the credit card has a 12% interest rate on normal uses, why is it 20% or more for cash advances? The simple answer is that they do it because they can. People will gladly pay the fees, so why do things any differently? The companies also justify it by pointing out that people who use cash advances the most are more likely to miss payments and fall behind.

If you’re going to use your credit for a cash advance, you should first devise a plan of action. Know beforehand how you’re going to pay it back. Read through the fine print to get a solid understanding of the fees, rules, and stipulations. Once you’ve made the cash advance, it might be wise to use a new credit card offer to transfer the balance over at a low rate. But don’t go opening too many new credit cards! It looks bad on your credit report.

Is there a way that cash advances can improve your finances? A credit counselor will tell you that you need to gain discipline over your spending habits, and to put money aside in order to save for a rainy day. If you’re frequently taking cash advances on your credit cards, that’s a sure sign that your finances are in poor health. It can be a wake-up call to do something about it. It might be time to take a long, hard look at your finances and change things.

Ideally, any money you take out of an ATM will be on a debit card, not your credit card. It’s always best to spend money you actually have rather than borrowing it from a company that only wants to make money off you.

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