A credit card is a great tool to have as long as you use it wisely. A popular myth that I always hear is that credit cards are bad and cause people to go into debt.
In reality, people create debt for themselves due to their spending habits and not simply due to the fact that they own a credit card. Credit cards can help you improve your credit score and build up a solid credit history, earn reward points and cash back that you can use to redeem for travel, finance purchases with 0% APR under certain promotions, and allow you to receive discounts on other merchandise and other services.
However, all these perks may come with a price, literally. Credit card fees tend to sneak up on you when you least expect it. Here are 7 types of credit card feels you need to watch out for.
1) Annual Fee
An annual fee may be charged to your card usually as a convenience fee for carrying the card. Not all cards have an annual fee, but the amount does vary depending on the credit card. For most basic credit cards with annual fees, the fee usually ranges from $50 to $99. However, I had a credit card with a $175 annual fee so it really just depends on the card and the terms.
Annual fees are billed every 12 months and instead of receiving an actual bill in the mail, you will most likely see it as a charge when you check your credit card statement. As a result, you’ll just need to pay your credit card bill to cover the fee.
Some credit card companies waive the annual fee when you sign up for a card so you don’t have to pay it for the first year. If you’re going to keep your credit card account open long-term, you need to make sure you are actually using your card and it’s providing a benefit to you to justify the annual fee.
2) Balance Transfer Fee
A balance transfer is when you transfer part or all of a debt balance you owe to another lender (credit card). A good reason to do a balance transfer would be if you transferred $2,000 on one credit card that had an 18% interest rate to a different credit card that had a 0% introductory APR for 14 months.
By transferring the balance you have on one card with a high-interest rate to another card with a low-interest rate or 0% APR, you can save money and potentially pay off your debt quicker.
It all sounds nice but there is usually a fee to do this. A balance transfer fee is usually between 3% and 4% to move your balance from one card to another. You’ll need to factor in this fee to see if a balance transfer would be worth it.
3) Finance Charge
Finance charges include the monthly interest that gets added to your account when you haven’t paid the entire balance of your credit card off by the due date. If you pay only the minimum payment each month instead of paying your balance off in full, you will receive a finance charge for the portion of your balance that you haven’t paid.
Even if you are in the process of paying off your credit card debt, you’ll need to watch out for this fee and be wary of the last day of your statement cycle each month. Earlier this summer, my husband and I were keen on paying off his credit card debt. We finally paid off one of his cards in full and he was confused to find out that he was still charged interest the following month. This was because we made his final credit card payment after the interest had already accrued for that balance he had.
4) Foreign Transaction Fee
Some credit cards are great to travel with while others aren’t. A foreign transaction fee is a charge of 1-3% on purchases you make with your credit card while outside the country. Each card has its own rate for foreign transaction fees.
The best way to get around this fee is by using a credit card that has no foreign transaction fees when you travel. Some credit cards even offer reward points if you spend money on certain travel expenses.
5) Late Payment Fee
Paying your credit card bill on time is a must. If you don’t, you’ll be slapped with a late payment fee. It’s important to at least pay the minimum payment on your credit card statement on-time each month if you can’t pay the full balance in order to avoid the late payment fees.
Typical credit card late fee charges range from $25-$35. I regret to admit a few months ago I was charged a $25 late fee because I got busy and forgot to pay one of my credit cards. Switching to automatic bill pay can help avoid this from happening and ensure that your credit card bills are paid on time each month.
6) Cash Advance Fee
If you need cash fast, you can most likely get a cash advance by withdrawing money from your credit card at an ATM. Either a flat fee or a percentage of the amount you withdrew is applied as a result of this convenience.
A cash advance is basically like a mini loan, so it’s important to consider the extra fees and interest you’ll have to pay for receiving quick cash. Decide if the fee is really worth it and if there is a better alternative before proceeding with a cash advance.
7) Reward Redemption Fee
Not all credit card rewards are free. This is especially true with travel rewards. Don’t be surprised if you are charged a fee or need to deduct reward points in order to book a flight or trip.
I remember when my husband and I were booking our honeymoon with credit card rewards and we were told we’d have to pay a fee to combine our points. Instead, we found a way to work around that fee and we each booked a few nights at our hotel separately, then added the other person on as a guest.
Another way to avoid fees when redeeming your credit card rewards for travel is to book travel online instead of by phone or simply ask for a fee waiver. Some companies may even offer fee waivers as an added perk so be on the lookout for those offers.
Most of These Fees Can Be Avoided
The good news about all these fees is that you don’t have to pay all of them. You can avoid most of these fees by being more alert and reviewing the terms and policies for each of your credit cards in detail so there are no surprises.
Set up reminders of when your bill is due or even automatic payments so you never have to deal with a late payment fee. It would also be helpful to boost your emergency fund so you don’t have to rely on credit cards and cash advances to cover emergency expenses.
Have you ever had to pay any of theses fees? If you could add to this list, what are some additional fees that cardholders should be aware of?
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Thanks for the all inclusive list! I love travel rewards cards but am not at the point where I can swallow high annual fees. You really have to weight the pros and cons associated with the card to determine if the annual fees are worth it!
That’s very true and I’m dealing with that now myself. My husband and I signed up for two travel rewards cards to travel hack for our honeymoon and now we don’t want to pay the annual fee that is coming up. I know some people close the cards before the annual fee comes up but you have to consider how that will affect your credit too. Plus, we really like our cards and can use them for future travel so I’m torn and we may just deal with it for now. It helps to have credit cards with benefits that outweigh the costs.
I try to avoid as many fees as possible. However, I have recently decided to bite the bullet and pay annual fees for certain travel credit cards because they offer a free hotel stay. I figure the stay will more than pay for the annual fee. I’ve also considered using the 0% APR deals (and I’ve gotten ones with 2% fee) to do some kind of arbitrage…but having found anything that would make sense. I know back in the days, there were no fees on the 0% APR cash advances and people would put in in high interest savings accounts (back when high interest was a lot higher than todays 1%)
I’m in the same boat with the credit card annual fee. I have a card that provides me with a free hotel stay for a nice and other bonuses that are too good to pay up, so I decided to pay the fee this year. That’s really interesting how people would use $0% APR deals but I doubt that would be as beneficial today.
Balance transfer fees are often overlooked so it’s a good idea to include them in this list. The problem is, balance transfer cards are advertised in such a deceptive and tantalizing manner that consumers often forget to read the fine print. So it’s not only the balance transfer fee you must look out for, but also the promotional period for which the 0% interest rate applies, which is usually no more than 15 months.
I agree, reading the fine print is key with balance transfers. When I first started using credit cards, the companies kept advertising balance transfer offers to me. I didn’t know what it was at the time so I just steered clear from it.
I HATE credit cards with an annual fee. However, I’m only thinking of the short-term, I know some credit card rewards can cover the annual fee plus have additional benefits to a no-annual fee credit card but I haven’t found one that justifies it for my spending habit.
I do love credit cards though, as I have 5 with a combined credit limit of $30,000. I use maybe 2-3% of that a month on necessary items and get rewards for it, so I can’t complain.
Yeah when you have a credit card with a fee, it’s important to make sure the rewards and benefits outweigh the costs.
In an old past life, I used to work for a credit card company. I’m well aware of the way credit card companies work. The point is to use cards for your benefit and make them work for you.
I hate it when people blame them, it’s like when people complain about being fired even though they did something completely on their own that got them fired even after several verbal and written warnings. *eye roll*
Talk about not being self-aware! :-P
That’s such a good point! The more you know about credit cards and how to make the most of the ones you have, the better. It’s important to take responsibility for your own choices and educate yourself.
The first fee is okay. The AMEX Platinum card charged me a $450 annual fee. Seems very steep but a lot of the benefits offset that fee in just a few months. So you just have to decide if the fee is worth it.
Great list about how many fees banks will charge. Fees are where banks make a huge chunk of their money, so always be on the lookout!
Woah! But I hear you on the AMEX fees. Mine is $175. I paid it once but I’m going to cancel it soon before the next annual fee comes up. The card doesn’t have a limit so I’m hoping it won’t affect my credit at all by cancelling it since it never affected my credit good or bad anyway.
It is definitely important to read all the card terms when signing up for the card so you know what you are getting into. It is also important to compare cards before signing up for one because if you travel over seas a lot you for instance, a low foreign transaction fee is something you would want to look for in a card. You want to make sure that you get a card that works best for how you use it. Great information, thanks for sharing!