One sneaky way money slips away is through credit card fees. They might seem like tiny nuisances, but they add up faster than you think and can significantly impact your budget. We’re going to break down some of the most common credit card fees and equip you with practical tips to avoid them.
The most common credit card fees and how to avoid them
Annual Fees
Think of an annual credit card fee as a yearly membership charge. Not all credit cards have them, but you’ll typically find them on cards offering premium perks, like generous travel rewards or high cash-back rates. These fees help card issuers cover the costs of those extra benefits and, of course, generate revenue.
Annual fees directly affect how much your credit card actually costs you. Even if a card boasts fantastic rewards, that annual fee can eat into your gains if you’re not maximizing the benefits. It’s essential to do the math and determine if the rewards you’ll earn outweigh the annual cost. For instance, if your card has a $100 annual fee, you’ll need to earn at least $101 in rewards to make it a worthwhile investment. Otherwise, you’re essentially paying for privileges you’re not fully using.
How to avoid them
Want to skip annual fees? Choose a card that doesn’t have one. Generally, premium travel reward cards, like the Chase Sapphire Reserve or American Express Platinum, come with annual fees because they offer perks like airport lounge access and extensive travel points. If you prefer a straightforward card without yearly charges, opt for a basic cash back card like the Discover it Cash Back or Chase Freedom Unlimited. These cards still offer valuable benefits, such as cash back, without the annual fee commitment.
Late Payment Fees
Late payment fees are charges you get when you miss your credit card’s payment deadline. It’s triggered when you don’t make at least the minimum payment by the due date on your statement. Things like forgetting the date or having insufficient funds can lead to this.
Late payments can significantly impact your credit score. Credit bureaus consider your payment history a key factor, and even one late payment can cause your score to drop. Multiple late payments can have a severe negative effect, making it harder to get loans or resulting in higher interest rates.
Typically, late payment fees range from $25 to $39. Many credit card companies use a tiered fee structure, where the fee increases if you’ve had multiple late payments within a specific timeframe. While federal regulations limit how much they can charge, these fees are still something you definitely want to avoid.
How to avoid them
One of the best ways to avoid late payment fees is to set up automatic pay for at least the minimum amount each month (just make sure your bank account has sufficient funds). You can also use calendar reminders or apps to track due dates. Also, double check your credit card bill every month to make sure everything is correct. This will give you greater control over your finances, make sure you’re always aware of your credit card activity, and minimize the risk of unexpected or fraudulent charges.
Over-Limit Fees
Over-limit fees happen when you spend more than your credit limit. This can occur through regular purchases, unexpected expenses, or even authorized holds like hotel deposits. Essentially, any transaction that pushes your balance beyond the limit can trigger this fee.
The consequences extend beyond just the fee itself. Exceeding your credit limit can negatively impact your credit score, as credit bureaus view high credit utilization as a sign of potential financial strain. Your credit card company might also increase your interest rate, making it more expensive to carry a balance. Consistent over-limit spending can signal financial instability, which could affect future credit applications.
These fees are usually a set amount, like $25 to $39. Some issuers may charge this fee each billing cycle that the account remains over the limit.
How to avoid them
To avoid these fees, keep a close eye on your credit card balance through your bank’s app or website to see how much you’ve spent. Set up alerts to tell you when you’re getting close to your limit. Try not to make big purchases that could push you over. If you think you might need more credit, ask your credit card company for a higher limit. And remember, even those little pending charges can add up, so keep track of those too!
Cash Advance Fees
Cash advance fees are what your credit card company charges when you use your credit card to get cash. You’ll see these fees if you use an ATM, go to a bank, or use the convenience checks your credit card company sends you. Unlike standard purchases, these transactions are treated as cash advances and carry distinct terms.
One of the biggest drawbacks of cash advances is the high interest rates they carry. These rates are typically higher than those applied to regular purchases and begin accruing immediately, without a grace period. This means interest accumulates from the moment the cash is withdrawn, making it a very expensive way to borrow money.
The fee structure for cash advances is usually a percentage of the amount withdrawn or a fixed fee, whichever is greater. For example, they might charge 3% of what you take out, but with a minimum of $10. So, if you get $200, it’s a $10 fee. If you get $1,000, it’s a $30 fee.
How to avoid them
To avoid these fees, don’t use your credit card for cash withdrawals. Instead, use your debit card at ATMs or if you need to borrow consider less expensive options like personal loans.
Foreign Transaction Fees
If you make a purchase in a currency other than your home currency, your credit card company will likely charge you a foreign transaction fee. These purchases can be made during international travel or while online shopping from foreign retailers. Travelers should be particularly aware of these fees, since they can significantly add to the cost of international purchases.
They’re usually calculated as a percentage of what you spend. So, if your card charges a 3% fee and you buy something for $100, you’ll pay an extra $3.
How to avoid them
Luckily there are many ways to minimize or avoid these fees. You can use credit cards specifically designed for travel that waive foreign transaction fees. Or, you can use your debit card to take out cash from an ATM when you arrive in another country (just check if your bank charges fees for that). Another option is to use a prepaid travel card, which lets you load money in different currencies before you go.
The easiest way to avoid these fees is to get a credit card that doesn’t charge them in the first place. Before you travel, always check the fine print on your current credit card to see what fees they charge.
Balance Transfer Fees
Credit card companies charge a fee, known as a balance transfer fee, when you transfer a balance from one of your cards to another. This is often done to consolidate debt and take advantage of a lower or 0% introductory interest rate, aiming for more efficient debt repayment.
These fees directly impact the overall cost of debt consolidation. While a lower introductory interest rate can be attractive, the balance transfer fee, usually a percentage of the transferred amount, must be factored into the total cost. For instance, a 3% fee on a $5,000 balance results in a $150 charge. This can offset the savings from the lower interest rate, especially if the debt is not paid off within the introductory period.
Balance transfers are beneficial when the new card offers a significantly lower introductory interest rate and the cardholder has a clear plan to pay off the debt before the promotional period ends. They aren’t a good idea if new debt is accumulated or if the balance is not paid off within the introductory period, as the interest rate will likely jump. Also, if the balance transfer fee outweighs the potential interest savings, it’s probably not a worthwhile move.
How to avoid them
If you’re doing a balance transfer, these fees are generally unavoidable, but they can be minimized by picking cards with lower fee percentages or promotional offers that waive these fees. Always read the fine print before initiating a balance transfer so you understand the full cost. Comparing different card offers and calculating the potential savings against the fees will help you make an informed decision.
Returned Payment Fees
A returned payment fee, or bounced payment fee, is a charge from your credit card company that occurs when your bank fails to process your payment. This typically happens when you have insufficient funds in your bank account, incorrect bank account information was used, the account was closed, or a hold was placed on your account by your bank.
If your payment does bounce, call your credit card company right away to find out what the issue was and fix it. Re-submit the payment as soon as possible, ideally using a guaranteed method like a wire transfer or certified check. Some credit card companies may waive the fee for long-standing customers or if it’s a one time occurrence, so it’s worth asking about.
How to avoid them
To make sure your payments don’t bounce, double-check that your bank info with your credit card company is correct and that you have sufficient funds before making a payment. You can also set up alerts with your bank to tell you when your balance is low. Setting up low-balance alerts with your bank and scheduling payments in advance through online banking or mobile apps can also help prevent this fee.
More Strategies for Avoiding Credit Card Fees
To further minimize credit card fees, consider these practical strategies.
Understand Your Credit Card Agreement
Review your credit card agreement and pay close attention to the fine print. This document outlines your card’s terms and conditions, including fee schedules and interest rates. Focus on these areas to avoid unexpected charges and make informed decisions about your credit card usage.
More Strategies for Avoiding Credit Card Fees
To further minimize credit card fees, consider these practical strategies.
Understand Your Credit Card Agreement
Review your credit card agreement and pay close attention to the fine print. This document outlines your card’s terms and conditions, including fee schedules and interest rates. Focus on these areas to avoid unexpected charges and make informed decisions about your credit card usage.
Communicate with Your Credit Card Company
Contact your credit card company with questions or concerns. You may be able to negotiate fees or interest rates, especially if you have a good payment history. Report billing errors immediately to resolve them. Proactive communication can help you save money and avoid unnecessary problems.
Set Up a Budget and Stick to It
A budget is a powerful tool for managing your finances. Track your income and expenses to ensure you’re not overspending on your credit cards.
Regularly Reevaluate Your Credit Cards
Regularly review your credit cards. Are you still getting the best value? Are there cards with better terms or lower fees that would be better? Use caution with this as closing a credit card account might cause a dip in your credit score.
Final Thoughts
If you’re not careful, credit card fees can really add up. Whether it’s a yearly fee, a charge for paying late, or a fee for using your card overseas, it’s money you’re losing. To avoid these fees, know what you’re getting into by reading your credit card agreement, set up automatic payments, keep an eye on your spending, and talk to your credit card company if you have any questions. Also check out our credit card do’s and don’ts for more tips on responsible credit card usage and avoiding common mistakes.
