You’ve probably heard the advice that you should avoid taking out cash advances on your credit card. But what exactly does that mean? What are cash advances? How do they work? And why are they supposedly such a bad thing?

Today let’s take a deeper look at what you need to know about cash advances.

What are Cash Advances?

When you get a credit card, you’re assigned a credit limit. This is the maximum amount of money the issuing bank will loan you at any given time. It’s like having a loan available with the convenience of a card.

But what happens when you need cash? You’d still like to be able to tap into that credit limit to pay for something, but the store won’t accept credit cards for some reason (maybe a small mom and pop shop or perhaps they have a technical glitch that knocked out their credit card processing temporarily).

In this case you would need to get a cash advance. You get cash against your credit limit.

How do Cash Advances Work?

If you’ve ever used a debit card at an ATM to withdraw cash from your checking account, you understand the gist of how credit card cash advances work too. You use your credit card at the ATM just like you would use your debit card.

It gives you cash from your available credit limit as opposed to your checking account balance. You use the cash in any way you please. And that cash advance adds to your credit card balance, which you’ll pay back.

Why All the Caution About Cash Advances?

The difference between using a credit card for a cash advance and getting cash using your debit card (other than having to pay it back) is the fees involved. Not only will you likely have to pay a cash advance fee — a set dollar amount or percentage of the withdrawal — but you’ll also have to pay interest. And that’s the real kicker. Cash advance interest rates are often higher than purchase rates, and you won’t get any interest free days on that cash advance (you’ll start accumulating interest charges right away).

Now you know the basics of what cash advances are, how they work, and why they aren’t always a good idea. That said, only you know if a cash advance is a good idea for you personally in your current situation. But here’s a tip: if you do decide to take out a cash advance, try to pay that balance off quickly. They really aren’t meant for long-term financing.