Common Credit Card Fees To Watch Out For
A lot of people trash credit cards, mostly because they can quickly put you under a mountain of debt.
However, credit cards can be wonderful tools in the hands of the financially responsible. Used properly, you can enhance your spending power, build your credit score, and accumulate rewards (cashback, miles, discounts, etc.).
Despite the power credit cards have, there’s another threat to your hard-earned money lurking right inside your card member agreement…
This insidious threat is credit card fees.
Sometimes, they show up on your card statement without you even knowing, which is sure to lead to some frustration even if you can afford it.
Fortunately, most credit card fees can be avoided quite easily with a bit of preparation.
1. Annual Card Fees
Believe it or not, card companies charge you an annual fee simply for the privilege of having the credit card. You don’t even have to use it; they’ll still bill you every year if it has an annual fee attached to it.
If you’re looking for your first credit card, you’re in luck: annual fees tend to only be on more “advanced” credit cards. Makes sense, because the annual fee is a drop in the bucket for the type of people getting those cards.
How To Avoid Annual Card Fees
Want to know the easiest way to avoid annual card fees? Don’t get a card with an annual fee! That is, if you don’t already have one.
For those who do have an annual credit card fee, you don’t have too much choice beyond cancelling the card with the fee. Technically, you could try negotiating it away with your card company, but we don’t think they’ll be willing to waive your fee when everyone else pays it.
And if you don’t, it’s really up to cost/benefit analysis. Do the perks of the card you’re eyeing outweigh the fee? A fair amount of card fees amount to only a few dollars a month, while some of the most premium cards could tack on an extra $40 a month.
2. Interest Fees
Ah, the reason everyone hates credit cards.
Also referred to as a “finance charge”, interest fees are charged whenever you carry a balance on a card. The amount of interest is determined by your balance and the card’s APR.
Rewards cards tend to carry higher interest rates to most likely hedge against rewards payouts. It’s a shame, too, because 1 accidental interest charge can wipe out a lot of cashback.
Think about it: if you spent $10,000 on a 1% cashback, 22% APR card, you’d have $100. But if you have to pay interest, you’d owe about $181. Now you lost all your rewards AND you’re in the hole $81!
How To Avoid Interest Fees
Avoiding interest charges is quite simple. Just pay off your balance in full each month and you won’t pay a cent of interest.
That’s not possible for everyone; some people fall into a tough spot and are forced to carry a balance, while others dig themselves into debt recklessly. Either way, if you have to pay interest, use the lowest-rate card possible. This usually means ceasing use of rewards cards and moving to the most basic card you have.
3. Late Payment Fees
If you didn’t think interest was enough punishment for not paying your card off, well, they’re going to charge you for paying late as well. These occur if you fail to make the minimum payment each month.
There’s not much more to them than that.
How To Avoid Late Payment Fees
Every time your bills comes due, the card company gives you your full balance, statement balance, and minimum payment to stay current on your card payments.
You need to at least pay the minimum payment to avoid late fees. However, that minimum payment increases as the balance your carry increases, so we’d recommend paying in full every time.
As a bonus, paying your full balance on time will knock out both late payment fees and interest fees.
Now, if you’re simply the forgetful type, auto-pay will be a boon in your fee-dodging efforts. Set up auto-pay and forget ever needing to log in online and pay manually.
4. Over-Limit Fees
Over-limit fees occur when you exceed your credit limit. These fees are especially insidious because the moment you’re in a crisis of debt, you get hit with EVEN MORE fees.
But if you’re always teetering on the edge, wondering if today is the day you blow through your credit limit, the over-limit fee is only a symptom of a deeper problem – your spending habits.
How To Avoid Over-Limit Fees
Over-limit fees are harder to reach, especially when you have a high credit limit. Simply keeping your reliance on credit cards to a minimum will basically guarantee you never having to pay one of these.
You should be keeping your credit card balance far below your credit limit anyways. Not only will it save you on interest charges if you end up carrying a balance, but it’ll keep your credit score in tip-top shape.
5. Cash Advance Fees
Your credit card can be used for nearly every transaction nowadays. Occasionally, you’ll come across a cash-only situation, such as a farmer’s market or a mom-and-pop shop. Or perhaps you just need a short-term cash loan without the proper bank account numbers. Either way, you can’t afford to wait for approval for a personal loan.
Enter the cash advance, which is a short-term cash loan taken out against your credit card, usually only up to a few hundred dollars. They’re easy to get, but cash advance fees are among the highest of all credit card fees.
Fees differ from card to card. Some charge a flat rate, say $10 per cash advance. Others might work on a percent basis, such as 5% of the loan. Yet others take a “largest of the two” approach, choosing the greater of some percentage or some flat dollar amount.
But one thing remains the same: these fees are outrageous compared to other credit card fees. It’s imperative you avoid them if you want to save your wallet.
How To Avoid Cash Advance Fees
Most common credit card fees can be avoided regardless of credit card use as long as you follow the rules.
Not cash advance fees.
If you ever take out a cash advance, you’re automatically charged the fee. There’s no getting around it, so the only way to avoid it is to never take out a cash advance.
Consider carrying a small amount of cash on your just in case. Get an ATM or debit card if you don’t have one as well; that way, you can access your cash without exorbitant fees.
And as always, live within your means. If you need to take out a cash advance to survive, that means you’re spending too much.
6. Balance Transfer Fees
Moving debt from one card to another is called a balance transfer. People usually do this to lower their interest rate if they have a lot of credit card debt and/or take advantage of a low (usually 0%) promotional rate on the balance transfer card.
As you’d expect, there are fees associated with the balance transfer. They usually fall in the 3%-5% range of the amount transferred.
There exist a lot of balance transfer cards that offer 0% interest on balance transfers for a long period of time, like a year or 18 months. This allows you to rapidly reduce your principal and perhaps even pay it off if you’re aggressive enough. While tempting, you have to do the math to see if your interest savings will outclass the balance transfer fee you pay.
For example, if you transfer $10,000 to a card with a 5% fee and 0% interest for a year, you would need to have paid more than $500 in interest over that same time period to make the transfer worth it.
How To Avoid Balance Transfer Fees
To prevent being charged balance transfer fees, do your best to avoid relying on balance transfers at all.
This can be done by keeping your balance low. You’ll never need to transfer a balance if you aren’t getting slammed with interest.
But if you have to perform a balance transfer, you should put as much money as possible towards that principal to make that fee worth it.
7. Returned Payment Fees
“It’s the thought that counts” doesn’t apply to paying your credit card bill. If you try to pay your credit card balance with insufficient funds, whether through paper check or online payment, you’ll be hit with one of these fees.
Yes, even when you’re trying to cooperate and pay your bill.
Oh, and they’re steep.
Many returned payment fees are up to $35 per returned payment! If you were hoping to use your cashback rewards, think again: they’ll all be eaten up because you accidentally (or intentionally) paid without having the money to do so.
How To Avoid Returned Payment Fees
The main problem here is lacking sufficient funds to cover the payment. Triple check your bank account before writing any check or clicking that “Pay Bill” button.
8. Foreign Transaction Fees
Frequent travelers beware: your card company most likely charges a fee on any transactions that occur outside the border.
Many card companies charge around 3% on all foreign transaction fees. Might not sound like much, but those little fees add up over time.
Why are you penalized for spending across the border, you ask?
It costs your bank/card company a little extra to process transactions in foreign currency, and so they pass on the cost to you in the form of foreign transaction fees.
How To Avoid Foreign Transaction Fees
Fortunately, most foreign transaction fees can be waived if you simply call your card company ahead of time and inform them of your travel plans. They’ll ask you a few simple questions about your trip so they know when to stop charging foreign transaction fees.
But you can never be too careful. We’d recommend avoiding any reliance on credit cards in foreign lands. Try to use cash, more specifically the local currency, as much as possible.
Even if you are charged a fee that you can get back later, that’s extra headache to deal with.
Think about opening a travel credit card if you’re a frequent international traveler. Most don’t charge any transaction fees for obvious reasons.
In addition, Discover and Capital One have done away with all foreign transaction fees for all their cards in the past decades. International travelers, arm yourself with one of these for general use and grab yourself a travel credit card just in case and you’ll be set!
9. Card Processing Fees
We’ll round out this list with card processing fees. You won’t see these in many stores or similar businesses, but some companies charge you extra for using a credit card. They do this to cover the cost of purchasing the credit card processing services.
Online rent payments most often charge these. They’ll tack on something like 3%, which is no small number since we’re talking about a rent payment.
How To Avoid Card Processing Fees
Avoid using credit cards on rent unless you’re absolutely sure they don’t charge processing fees. Your minuscule cashback rewards will be severely outweighed by the processing fee.
Linking your bank account is generally the exact same process, just without the service fee. There is an added bonus, though: you don’t need to remember to pay off your rent bill from your credit card if you pay directly from your bank account instead.
And you can always pay by paper check.
Don’t Get Burdened By Fees
Credit card fees are a nuisance. They exist solely to punish you for making mistakes.
That doesn’t mean they aren’t easy to steer clear of if you stay vigilant!
Always exercise financial discipline. That means living within your means, paying off your credit card balance in full every month, regularly checking your credit card statements, and keeping open lines of communication with your card company.
Do all that, and you’ll avoid these fees on autopilot.