Credit Card Fees Explained (and how to completely avoid them)
Millions of credit cards are used every single day in the world and are becoming more and more popular. This has created a huge market for credit cards and banks and credit card companies see huge potential. They are always introducing new cards with a variety of fancy features that lure you in to applying for a card. Many people apply for multiple cards without even knowing all the fees that are associated with the card. This article will provide an in depth look of all credit card fees and even offer guidance on how to reduce them.
Annual Credit Card Fee
The annual fee is the price you pay every year for the privilege to use the credit card. Low interest credit cards and balance transfer credit cards usually do not have a yearly fee. The annual fees are mostly seen with any type of credit card that offers cash rewards or cash back. This includes gas credit cards, air miles credit cards etc. The credit card fees usually range from $25 and can be as high as $195 a year.
How Do I know If the fee is worth it?
You can use a few simple calculations to see if the fee is worthwhile. You need to calculate if the cash amount of the rewards and cash back you receive are a higher amount then the annual fee. For example, if you are earning about $150 worth of cash back rewards per year and the card has an annual fee of $50 then the annual fee is worth is as you are coming out $100 ahead.
On the contrary, if you are only receiving about $30 on cash back or rewards per year and your card’s annual fee is $50 then ditch the card. Find a card that has no annual fee and a free introductory balance transfer and you will be in a better situation .
There are also credit cards that have no annual fee which offer low interest rates and cash back/ reward programs although these programs are limited with these cards. Some of the cards include:
- Chase Freedom Card
- Discover IT card
- Citi Double Cash card
Balance Transfer Fee
This is the fee that you will pay when you transfer the balance from one card to another. The fee is usually in a range of 3% to 4% of the amount you are transferring or it could be a fixed flat fee. For example if you are transferring $1500 with a 3% transfer fee to a new credit card you will have to pay $45.
Be careful as many cards state you pay 0% interest on the amount of the balance transfer however you still have to pay the fee. A balance transfer fee is well worth it when you think about how much you will be saving on interest payments during the introductory period of the balance transfer credit card. However if the amount of the transfer fee is higher then the amount you hope to save on interest then it is not worth switching to the new card.
How to Save on the balance transfer fee?
There are special balance transfer credit cards which offer a 0% APR introductory rate for the first 12 months you have the card. This is a good way to save on some interest charges while you pay down the amount you owe. The Chase Slate card is a great card for a balance transfer as it offers a $0 balance transfer fee if you make the transfer within the first 60 days you have the Chase Slate card. Furthermore the Chase Slate card offers a 0% APR introductory rate for the first 15 months.
Cash Advance Fee
The cash advance fee must be the most common question consumers have when they see the fee on their statement. ‘Why did I pay a cash advance fee?’ is commonly a question asked. Well, the cash advance fee is the fee you pay for borrowing cash against your credit card. Cash advance fees are charged when you use your credit card for cash at an ATM, or if you go to the bank and get a cash advance from your credit card.
Cash advance fees usually range from 2% to 5% . For example if you use your credit card to withdraw cash from an ATM you will pay a cash advance fee. If the fee is 3% and you withdraw $100 you will pay a 3 dollar cash advance fee.
How to avoid the cash advance fee?
Many people aren’t aware of this fee and therefore use their credit cards at ATM’s frequently. To avoid this simply do not use your card to get cash unless it is an emergency. If you need cash withdraw it from your checking account to avoid the cash advance fee.
One trick, especially for people who are TRAVELLING ABROAD and NEED TO ACCESS MONEY, is to add a positive balance on your card and only withdraw cash up to that amount. This completely eliminates the Cash Advance Fee and any interest put on the amount. For example, if you know you are going to be in Europe for a 2 week vacation, you may want to dump $2000 or so extra onto your credit card balance, so you have a positive $2000 balance. Credit card Cash Advance fees start charging you from the day you take out cash until you repay it. By having a positive balance on your card and only withdrawing up to this amount via ATM’s, you avoid the interest fees AND you access the interbank exchange rate that credit cards offer when you convert your own currency into the local currency via the Credit Card cash withdraw. Keep in mind you may still have to pay the Foreign Transaction Fee, unless your credit card is a travel friendly card that doesn’t have this fee.
Foreign Transaction Fee
A foreign transaction fee is simply a fee charged for every purchase made outside the country that the card was issued in. The fee usually ranges from 3% to 4%. If you are on vacation and are frequently using your credit card then foreign transaction fees can really add up quick. For example if you spend $300 on your credit card in a foreign country then with a 3% fee you are paying an extra $9.
How to Avoid the foreign transaction fee
This is easy, look to switch to a card that does not have this fee. There are many cards that do not charge a foreign transaction fee. Some of these cards include:
- Chase Sapphire Preferred card
- Capital One Venture Rewards card
- Bank Americard travel rewards card
One thing to note is most of cards with no foreign transaction fee have an annual fee you have to pay. So you must decide if the amount you save on the foreign transaction fee is more then the cost of the annual fee. If you are a frequent traveller then it is highly recommended to go with a card that has no foreign transaction fee.
Late Payment Fee
The late payment fee is a fee that is charged when you do not make at least your minimum by the date required.The fees vary by card but they are usually in the range of $5 to $25. A lot of times the payment system is tiered based on the balance on the card. For example if you owe between $500-$1000 your late payment fee may be $10, but if you owe $1000-$2000 your fee may be $25. Credit card companies are limited by law on how much they can charge for a late payment. The maximum a credit card company can legally charge is $25. Most card companies state that the payment must be paid by 5 p.m. on your due date and if you are even one minute late with the payment you could be charged with the late fee. Late payments can be very detrimental to your credit and could cause:
- your interest rate to increase
- your credit limit to decrease
- each late payment is recorded on your credit report
How to avoid a late payment fee
Avoid this fee by not making a late payment on your credit card. If you have trouble forgetting to make your payment you set up an auto payment on your card. With an auto payment system a specified amount you set will be paid on to your card on a monthly basis. You can customize the amounts paid each month and even switch it to a bi-weekly payment. Also if you are never late on a payment and forget one month then if you call and ask as lot of times they will waive the late payment fee if they see it is a rare occurrence.
If you are still concerned about late payment fees and don’t want to worry about missed payments there are some cards that do not have a late payment fee. The Citi Simplicity card does not charge anything for late fees.
Believe it or not some credit card companies will charge you a fee if your card is inactive for a long period of time. Also some credit cards have an annual spending limit which specified that you have to use your card for a specific amount of money in a year. Failure to do so will also result in an inactivity fee.
Credit card companies charge this fee because if you are not using your card they are not generating any income from you. Charging this fee is their way of still generating income off of you.
How to avoid the inactivity fee
If you know you will no longer be using the card don’t just leave it active, close the card to avoid the inactivity fee.
Some credit card companies will actually charge you for closing out your credit card. It may seem unfair but it is usually in the contract when you are first issued the credit card. Many times it will state in the card contract how the closure fee is determined. Many times if you close the card after having it for a short time you will usually have to pay a closure fee.
How to avoid a closure fee
A lot of times if you contact the card’s customer service you can negotiate and have the fee waived or at least decreased. It is important to know that it may not be in your best interest to close out your credit card. Closing a credit card that you have had for a long time can hurt your credit rating. It is wise to keep the card open and just use it sparingly to make sure you don’t get hit with an inactivity fee.
Over the limit fee
This fee is charged when the balance on your credit card exceeds your credit limit. For example if you have a $3000 limit and you accrue a balance of $3200 you will be charged a fee. However there have been recent changes with the law about how often a credit card company can charge you for over limit fees. Also the card companies are now only allowed to charge one over limit fee per billing cycle rather then the previous method where the card holder would be charged for each purchase that was over the limit.
Consumers can actually opt in to over limit fees. You may be wondering why anyone would be willing to do this but they choose this over having to deal with their card being declined especially if they are using it in an emergency.
How to avoid the over the limit fee
Simply put, this fee can be avoided by always ensuring you have lots of breathing room with your credit limit. It is never good to carry a balance that is close to your credit limit anyway as it is bad for your credit score. If you are worried about having a balance near or over your credit limit you can always call and request a credit limit increase.
Returned Payment Fee
This is a fee charged when a customer attempts to pay a credit card bill with a check that bounces are with an account with insufficient funds. This fee can be very high and is on average approximately $35. The fee charged can depend on what your minimum payment is. For example if your minimum payment was $15 then a lot of times your returned payment fee will only be $15.
Paper Statement Fees
This isn’t a major fee most are worried about however it must be mentioned. Most people know use electronic statements to view their credit card bills however some people are old fashioned and still receive them in the mail. The paper statement fees can range from $2 to $4 dollars a month.
The Final Word
With all these fees in mind it is important to read the terms and conditions on your credit card contract as all the ‘hidden fees’ can be found in the contract. Most people do not read the contract and are then surprised but fees they had no idea they would have to pay. Always read the contract.
Many of these fees can be completely eliminated IF you do your research BEFORE getting a credit card by picking the best credit card. The Best Credit Card is highly depending on how you personally will be using the card and what you need the card for. But by tailoring the card to give you the most benefits for your particular usage, you can really cut down on paying any extra fees that are unnecessary.