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Many Americans rely on credit cards for regular purchases at the grocery store, gas pump, and favorite shopping spots.
Swiping to pay has been the standard for years, and for good reason. The benefits of credit are clear.
Credit cards provide greater security than debit cards or cash, and convenience is another perk. But the reality is that credit cards often also come with fees. In fact, Americans now pay over $100 billion in annual fees and interest on their credit cards.
If you’re sick of paying fees, curious why you pay them, or simply considering whether you should get a credit card, review these common credit card fees and how to avoid them.
Common Credit Card Fees
When it comes to credit cards, it’s important to realize how they work. At a high level, a credit card is simply the medium used for you to access a revolving line of credit. This is just a fancy name for a loan that you can use and repay repeatedly. You can think of it as money you can access on-demand, up to a certain amount.
But just like with all things, the access to this credit comes at a price in the form of fees. Credit card companies profit by charging transaction fees whenever you use their card to make a purchase. They earn this fee for facilitating the transaction with the major credit card networks (Visa, Mastercard, Amex, etc.) and the retailers. On top of this hidden fee, they also charge you interest, annual fees, and a host of others.
A lot of people get their credit cards to build their credit score, but overlook the potential impact of these fees. If you aren’t familiar with credit card fees or how they work, let’s break them down.
1. Annual Credit Card Fee
Many financial institutions charge an annual fee for their most popular cards. For example, Chase charges $450 for their Chase Sapphire Reserve card. American Express charges $550 for their Platinum Card.
These annual fees are simply the cost that they charge you to keep the account open and active. Whether you spend a penny on the card or you decide to max it out, you’ll still be paying this flat annual fee.
How to Avoid Annual Credit Card Fees
At first glance, paying a fee for the right to own a credit card may seem absurd. After all, it’s not like you have to pay Nike an annual fee in order to purchase their sneakers at the store. However, the good news is that not all cards charge a fee.
If you are new to credit cards, consider starting with a credit card that has no annual fee. Some cards will waive the fee for the first year, but you’ll want to find a card that doesn’t charge you to keep your account.
If you have a card with an annual fee and want to get rid of it, don’t close your account just yet. You can always call the cancellation department and ask for the fee to be waived. If they agree, you’ll be glad you asked.
2. Balance Transfer Fee
If you are carrying a large credit card balance, transferring it to another card can be a good way to keep the interest fees at bay while you get your finances in order. The downside to a balance transfer is that they often come with a 3-5% fee based on the amount you transfer from one card to another.
The reason that a balance transfer may be attractive is that some cards have a 0% interest offer for the first 12 months. In that case, a transfer could save you money in interest and finance charges.
How to Avoid Balance Transfer Fees
If you think about the math, balance transfer fees can add up quickly.
Let’s assume for a second that you currently have a $5,000 credit card balance and are interested in a balance transfer to a new card. If the new card has a 5% balance transfer fee, then you’ll be on the hook for $250. Adding $250 to your credit card balance can add insult to injury.
However, there are times when the 3-5% fee is still worth it if you have a high interest rate on your old card and your new card has a 0% interest introductory offer. You’ll want to do the math before you make the decision to transfer the balance, to make sure the fee is worth it.
The easiest way to avoid balance transfer fees altogether is to find a card that has no balance transfer fee.
Yes, these cards exist and can be an awesome alternative if your cash is tight. Some cards like the Chase Slate card offer this as a standard feature. Others may offer it on a case-by-case basis or as part of a special offer. Read the details carefully before you apply to make sure you know what you are getting.
3. Cash Advance Fee
A cash advance is when you use your credit card at the ATM to withdraw money. Unfortunately, doing this comes with a hefty credit card fee. For this reason, a cash advance should only be used as an absolute last resort or in case of an emergency.
Don’t put your life in danger to avoid the fee, but also don’t use a cash advance for another round at a cash-only bar.
How to Avoid Cash Advance Fees
Your best bet for avoiding this fee is to make sure you have your debit card with you and that there’s money in the account. Another option is to find a friend who is carrying cash and simply Venmo them back to avoid having to withdraw cash yourself.
Realistically, the only time it makes sense to use a cash advance is if your only alternative is to take out a payday loan to feed your family or another true emergency.
4. Expedited Payment Fee
When it comes to establishing credit and building a strong credit score, few things are as important as paying your credit accounts on time.
The credit card companies know this, and they sometimes will charge you to make an expedited payment over the phone. A common scenario would be if you forget to pay off your credit card balance, or your paycheck arrived late and you need to make the payment the day it’s due.
How to Avoid Expedited Payment Fees
The easiest way to avoid expedited payment fees is to set up automatic payments for your accounts. If you aren’t sure you’ll have the funds to fully pay off the card, set the account to at least make the minimum payment. This will allow you to avoid a last-minute scramble and potential fee.
Credit card payments are typically due on the same day each month. Plan ahead and don’t get caught by surprise when your payment is due. As always, if you can’t avoid the fee, try asking for them to waive it. It never hurts to ask.
5. Finance Charge
Finance charges, which are also known as interest charges, are the bread and butter of credit card fees. These are the fees that people wondering whether they should get a credit card or not think of first. If you don’t follow the best practice of paying your credit card off in full each month, you’ll be hit with a monthly finance charge.
The reality is that most credit cards charge anywhere from 15%-25% in interest, which can make credit cards extremely difficult to pay off. As the interest accrues, it is added to your total balance, and you’ll owe even more interest the next month.
It’s easy to see how this vicious cycle would be difficult to break.
How to Avoid Finance Charges
The easiest way to avoid finance charges is to not spend more than you can afford on your credit card. The age-old advice is to use your credit card like a debit card. Check your checking account regularly. If you don’t have enough money to cover an expense, don’t use it.
Likewise, if you find that you are starting to carry a balance, leave your card at home so that you don’t make the problem worse.
If you can’t pay the balance off in full at the end of the month, try to break the payment down into two monthly payments that are more manageable for you.
6. Foreign Transaction Fee
If you are lucky enough to travel abroad to see and experience a different part of the world, you’ll want to be careful before using your credit card.
Credit cards often charge an international transaction fee. This means that they tack on an additional fee to your purchase based on the percentage of the transaction if it’s made abroad.
You don’t necessarily need to be traveling abroad to be hit with a foreign transaction fee. Some online purchases made at retailers from abroad may trigger these fees.
How to Avoid Foreign Transaction Fees
If you travel abroad regularly for work or vacation, it may be worth it to apply for a travel card that doesn’t charge international transaction fees. For example, the Chase Sapphire Reserve card is a great card for this purpose.
If you are looking to make a purchase online from a foreign company, it’s best to reach out to them and confirm whether or not there will be a foreign transaction fee.
7. Over-the-Limit Fee
These fees are becoming less common thanks to recent legislation. However, it’s still good to be aware of them.
If you opt in to the ability to exceed your credit limit, you may be charged a fee for doing so. The law states that you must opt in before you can exceed your credit limit, so be aware of what you’re agreeing to before choosing this option.
How to Avoid Over-the-Limit Fees
To avoid over-the-limit fees, make sure you are aware of your remaining credit and don’t exceed the limit. Also, make sure you haven’t opted in to the ability to exceed your credit limit.
8. Late Payment Fee
A late payment fee is charged to your account when you fail to make your minimum monthly payment on time. This fee is typically capped at your minimum payment level.
How to Avoid Late Payment Fees
The best way to avoid this fee is to make your payments on time. Making your payments on time helps you avoid unnecessary fees and maintain an excellent credit score.
If you’re having trouble making your payments, it’s probably time to learn how to make a budget and track your expenses. Again, consider setting up an automatic withdrawal for the minimum to ensure you never miss a payment.
9. Returned Payment Fee
A returned payment fee will occur if your monthly payment is not accepted for insufficient funds. If this happens, you shouldn’t be charged both a returned payment fee and a late payment fee. Keep tabs on your account so that you don’t get double penalized.
How to Avoid Returned Payment Fees
To avoid a returned payment fee, always keep a cushion in your checking account and keep tabs of when your monthly bills are due. If you’re unable to make the payments and are falling behind, stop using your credit card and seek financial help.
10. Less Common Credit Card Fees
While we’ve already covered a number of different credit card fees, there are more.
Some other fees that you need to be aware of are application fees, credit limit increases fees, and credit card replacement fees. Before you make any of these actions or add an authorized user to your account, you’ll want to ask about any potential fees so that you understand exactly what you might be charged for.
Avoiding Credit Card Fees Doesn’t Have to be Hard
All of these fees may seem overwhelming. However, with a few simple practices, you can avoid most of them without much effort.
For starters, set up automatic payments so that you never have to worry about late fees. Many people set auto payment for the entire balance due so that they never have to pay a penny in interest charges. Consider doing the same if possible.
If you are new to credit cards or aren’t sure how often you’ll use the card or what its benefits are, look for a card with no annual fee. Make sure you don’t use your credit card for a cash advance unless it’s an emergency.
Lastly, pay attention to the fine print. Learn the details of your card so you never get caught off guard by credit card fees.
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