Today, I’m pleased to share a guest post from Gary Dek. Gary Dek is a contributor to and is always looking for ways to make and invest money. Gary previously worked for an internet company on their M&A team, as well as investment banking and private equity firms in California.

 Credit Card Convenience Checks

If you have a credit card that allows cash advances, you have probably received credit card convenience checks and just don’t know what they are. Many credit card companies send these checks to their customers on a regular basis. Interestingly enough, I have an account with Discover Card and they send these checks on a monthly basis, despite the fact that I’ve never maintained a balance on any of my cards or even like using checks. While convenience checks can be used for any purpose and look exactly like normal checks, you should be aware of how they differ from bank checks before deciding to use them to pay bills.

How Do They Work?

Convenience checks look and work just like regular bank checks or drafts, but instead of drawing on money already in your checking account, convenience checks are treated like a cash advance on your credit card. The checks have expiration dates but within the time stated on the check, they are valid up to the available credit limit on your card.

However, unlike bank checks which are often issued with free checking accounts, convenience checks have fees. The interest rate on credit card cash advances may be as high as 29.99%, even if the rate of interest for purchases on your card is normally only 12.99%. The interest on cash advances begins to accrue the moment the money is borrowed, so interest charges apply even if you pay the full amount when the credit card bill becomes due. The standard transaction fee for cash advances is about 4% in addition to the interest charged by the credit card company.

Honestly, I did not know that last part, but when these offers come from a credit card company, you should just assume there is a catch. Thankfully, I’ve never needed to use them and finally decided to research it.

Why Use Convenience Checks?

The advantages of convenience checks are they can be used for balance transfers from one credit card to another. Low introductory rates on some credit cards allow consumers to save on interest payments on balance transfers for between 6 and 18 months. Furthermore, there is a balance transfer fee of 3% in addition to the fees associated with the convenience check. When deciding to transfer credit card balances, it is smart to consider all the associated fees to determine if transferring your balance will save money or not.

Additionally, some vendors do not accept credit cards. While this problem is increasingly rare in our global economy, it does happen sometimes. If a vendor does not accept a credit card and you do not have access to bank checks or wire transfer, you can usually pay with a convenience check. Obviously this can be an expensive alternative to purchasing items on your credit card or paying in cash.

It is also important to keep in mind that credit card companies apply payments to the balance with the lowest interest rate first, so if you normally carry a monthly balance on your credit card, you could be paying for the convenience check, at the higher interest rate, for months.

Disadvantages of Convenience Checks

Interest Payments. Convenience checks have the highest interest rates the credit company charges, even if you have excellent credit. If you cannot pay off the convenience check right away, the interest on the check may cost more than the initial purchase.

Fees. In addition to extremely high interest rates, fees can be as much as 4% of the total amount borrowed. If your advance is for a small amount, the company may even have a minimum fee which is greater than 4% of the total amount of your check.

Credit Score. Since convenience checks are loans, they increase your debt to income ratio and may have a negative impact on your credit score. Not only that, while bank checks allow you the option to protect yourself from overdraft fees, going over your limit with a convenience check means you will be charged a penalty plus fees for the returned check. Using convenience checks raises your credit card debt, which should not exceed approximately 50% of your credit limit or this can lower your credit score.

No Protection. The purchase protection plan that your credit card offers on items bought with the card do not apply when the items are purchased with a convenience check. The check is considered the same as cash, even though it is issued against your account by the credit card company. Cash advances do not fall under the Fair Billing Credit Act and companies do not have to offer the same guarantees that are offered on credit purchases.

Identity Theft. In today’s world, identity theft is a real threat and using convenience checks can increase the risk of someone stealing your credit card information. If you do not plan to use convenience checks, contact the credit card company and ask them not to send the checks in the mail. Never leave checks out and if you lose them, report the loss to the credit card company immediately.

Bank Checks Are A Better Deal

Using a bank check when credit cards are not accepted by a vendor is financially more responsible than using a convenience check. In most cases, if you do not have the money for the purchase in your bank account, you should not spend it. Checking accounts usually allow customers to apply for overdraft protection, which saves on fees and returned checks if you accidentally spend more than you have on deposit. This avoids the penalties and embarrassment of a returned check for exceeding your credit limit. Unless an expense is an emergency and you do not have the money to cover the cost, a personal loan is a better and cheaper way to pay for necessary items that you cannot afford immediately.

If there is no time to apply for a bank loan, check with family or friends to see if they can give you an immediate, temporary loan before resorting to a convenience check. You might also consider asking your employer for a cash advance. If being short on cash is a regular occurrence and you’ve done everything you can to stop overspending, then it may be time to explore ways to make money from home and create a side income.

While credit card convenience checks may have some advantages, consumers should be aware of all the pitfalls of relying on these disguised cash advances before opting to use the checks. It is smarter to use your credit card for purchases or your bank checks whenever possible to avoid falling into a serious credit trap. If you thought credit card debt was a nightmare, don’t experience worse with convenience checks.

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2 Responses to What Are Credit Card Convenience Checks?

  1. Pamela says:

    I hate those things! I shred them as soon as I get them (I don’t want someone taking them and ripping me off). I wish credit card companies would stop sending them, but despite my complaints, I still get them.

  2. Thanks for sharing this wonderful post Rebecca. Cash advance solutions have been growing in popularity,because they are fast,easy and more convenient than conventional loans.

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