If you use an iZettle device to purchase something by credit card in Sweden, then check your credit card statement immediately, because your credit card company might treat the purchase as a cash advance and additional fees and interest might apply.

Sigh.

I learned this the hard way traveling in Sweden recently. Fortunately, the customer service representative at my credit card company agreed to reverse the cash advance-related charges; however, this highlights two problems: that iZettle might report a purchase as a cash advance and that once you withdraw cash on a credit card, you can’t reasonably know how much to pay in interest. In my case, the purchase was somehow treated as a Swish mobile payment, and I have no way to know how this happened: did the vendor configure something incorrectly, report a sale incorrectly, did some automated system record the payment method incorrectly? I would expect that nobody will ever know how this happened.

The iZettle Problem

I want to support iZettle. I love not having to use cash in foreign countries, where foreign bank machine withdrawals carry uncertain exchange rates and unpredictable withdrawal fees. I also love the typical benefits of using a credit card: payment grace period, automatically tracking transactions, even cash-bank rewards (in the case of this particular credit card). I do not, however, wish to pay the price of a cash advance on a credit card for these benefits.

I have asked iZettle through their web contact form for information regarding this problem. I made at least a dozen purchases around Stockholm using iZettle devices and only one—at a Christmas market vendor for hot chocolate—was reported as a cash advance. All the other purchases were reported as purchases and handled as one would expect of a typical (North American) credit card account. As of this writing, I don’t know whether iZettle will have a useful answer for me. I intend to add details to this article as they find me.

I have a Square reader and make regular purchases at vendors who use them. I have never seen those purchases treated as cash advances. Is it possible that customers of Square-wielding vendors have experienced this problem, too? I’d like to know.

The Cash Advance Problem

I will now describe my experience with an MBNA Mastercard in Canada, although I imagine that others have had similar experiences, at least in North America.

Once I withdrew cash from a bank machine on my credit card account, the bank began charging interest immediately. This differs from purchases. On purchases, the credit card company gives me approximately 21 days to pay for my purchases before charging interest on those purchases, known as the grace period. Your credit card statement probably describes at least the highlights of your grace period. This makes it possible to review my purchases and resolve disputes before needing to pay.

Since the grace period covers purchases but not cash advances, then during the grace period, interest accumulates on the cash advance. When MBNA Mastercard publishes my statement and claims “You owe $2,750”, this amount is wrong by the time I see the statement. This means that if I pay $2,750 on the due date that they publish on the statement, then I am still charged an uncertain amount of interest unless, by chance, I know exactly how they are calculating the interest, which formula they do not publish. Yes, there are standard formulas for compound interest, but the best I can do is overpay the balance due and hope that I overpay by enough to cover the interest charges.

Worse: credit card companies apply payments to purchases first, and then to cash advances. This means that I can’t just pay off the cash advance first, then pay off the purchases after the grace period. This leaves me a Morton’s Fork:

  • Overpay the statement balance before the statement date (the “closing date”), in the hopes that I correctly predict which purchases will be posted to the account before the credit card company publishes the statement, or
  • Wait until the statement is published, then overpay the statement balance as soon as possible—certainly before the due date—in the hopes that I correctly calculate the interest that has accumulated on the cash advance.

Either way, this creates cash flow pressure: I have to pay my entire credit card balance 2-3 weeks before the vast majority of that debt becomes due in order to avoid an unpredictable amount of interest.

Big Deal? It Depends.

Right now I can treat this as a minor inconvenience. The interest charge is less than $1 per month and I have enough slack in my cash flow to pay the statement balance early if I wanted to avoid the interest charge. After about 2 months, the outstanding interest on the cash advance falls below $0.005 and rounds down to $0.00. This costs me more in effort and energy than in money: tracking the charges, understanding what happened, recording the details in order to keep track of my personal financial situation. It’s like when your accountant has to spend 15 minutes understanding why a transaction is $4 out of balance: a significant waste of energy.

For someone with no slack in their cash flow who is forced by their circumstances to rely on cash advances from a credit card account, however, this could create an endless loop. They can’t overpay their balance due; they have to pay the posted minimum payment; however, the posted minimum payment is wrong by the time the credit card statement arrives by postal mail or email. This creates significant risk (and problems) for some people. I feel very bad for them.

How to defend oneself? One has to understand what’s happening so that one can decide how to handle it. I hope that this article helps at least one person improve their understanding of day-to-day, practice personal finances.