Credit Card Fees: What You Need to Know
Credit cards are a popular financial tool that can help you build credit, earn rewards, and make purchases. However, they also come with fees that can add up quickly if you’re not careful. In this post, we’ll explore the different types of credit card fees and how to avoid them.
Annual Fees
Some credit cards charge an annual fee for the privilege of using their card. This fee is typically charged once a year and can range from $50 to several hundred dollars. Annual fees are commonly associated with premium or elite credit cards that offer exclusive benefits like travel perks or cashback rewards.
If you’re considering applying for a credit card with an annual fee, it’s important to weigh the costs against the benefits. For example, if a card offers travel perks like airport lounge access or free checked bags on flights that you frequently take, it may be worth paying the annual fee. However, if you don’t plan on taking advantage of these benefits, it may be better to opt for a no-annual-fee card instead.
Late Payment Fees
One of the most common credit card fees is the late payment fee. If you fail to make at least your minimum payment by the due date on your statement, you’ll likely be charged a late payment fee ranging from $25-$40 depending on the issuer and state regulations.
To avoid late payment fees:
1) Set up automatic payments so that at least your minimum payment is made each month.
2) Schedule reminders in your calendar or set alerts through your bank’s mobile app.
3) Make payments early so there’s plenty of time for them to process before the due date.
Balance Transfer Fees
Balance transfer fees are charged when you move debt from one credit card to another as part of a balance transfer offer. These offers often have lower interest rates than normal APRs (annual percentage rates), making them attractive options for those looking to pay off debt.
Balance transfer fees typically range from 3-5% of the amount transferred, depending on the issuer. For example, if you transfer a balance of $5,000 with a fee of 3%, you’ll be charged an additional $150.
To make sure that a balance transfer offer is worth it, calculate how much interest you’ll save over time and compare it to the balance transfer fee. If you’re not able to pay off the transferred balance within the promotional period (usually 12-18 months), you may end up paying more in interest charges than what you saved on fees.
Cash Advance Fees
A cash advance is when you withdraw cash from your credit card at an ATM or bank branch. Cash advances typically have higher interest rates than regular purchases and often come with a cash advance fee ranging from 2-5% of the amount withdrawn.
For example, if you take out a cash advance of $500 with a fee of 4%, you’ll be charged an additional $20 in fees plus any interest charges that accrue on the advance.
It’s generally best to avoid cash advances unless it’s an emergency situation as they can quickly add up due to high-interest rates and fees.
Foreign Transaction Fees
If you plan on using your credit card while traveling abroad or making purchases from foreign merchants online, watch out for foreign transaction fees. These are fees charged by some issuers for transactions made outside of your home country and can range from 1-3% per transaction.
To avoid foreign transaction fees:
1) Look for credit cards that don’t charge these types of fees.
2) Use local currency instead of opting for dynamic currency conversion (DCC), which can result in hidden exchange rate markups.
3) Consider using alternative payment methods like PayPal or digital wallets that don’t charge foreign transaction fees.
Overlimit Fees
Overlimit fees are assessed when you exceed your credit limit. These fees are not as common as they used to be due to regulations put in place by the CARD Act of 2009 that require issuers to get permission from cardholders before allowing them to go over their limit.
If you opt-in for overlimit protection, you’ll be charged a fee ranging from $25-$35 each time you exceed your credit limit. It’s generally best practice to avoid going over your credit limit altogether since it can negatively impact your credit score and increase the likelihood of accruing interest charges.
Final Thoughts
Credit cards can be useful financial tools, but it’s important to understand the fees associated with them so that you can make informed decisions about which ones are worth paying. By being aware of these fees and taking steps to avoid them, you can save money and use your credit card wisely.