Credit cards are beneficial because they allow you to make purchases today and pay tomorrow. However, this benefit isn’t fee. Credit card issuers need to make money to continue offering credit cards. These multi-billion dollar companies earn much of their money by charging fees to their cardholders. Some fees are charged just because have the card, others are charged based on how you use (and don’t use) your credit card.
Why Do Credit Card Fees Matter?
The more you spend on credit card fees, the less money you have to spend on other things. Credit card fees increase the cost of credit cards and make them less attractive. After all, is it worth the convenience of delaying payment if you have to pay upwards of $100 for the convenience? Of course not. Why make the credit card companies even richer by paying credit card fees if you don’t have to? Read on to learn more about common and not-so-common credit card fees and how you can avoid them.
Credit Card Fees
An annual fee is a yearly fee assessed by some credit card issuers just for having the card. Some credit card issuers charge the annual fee at the beginning of the year whether you make charges on the card or not. Depending on your credit card, you may be able to avoid the annual fee by charging a certain amount in purchases every year.
The late fee is added whenever the minimum credit card payment is not received by the due date. Your credit card may have a flat late fee like $39 or a tiered late fee that increases as your balance increases. If your payment is received on time, but is less than the minimum payment, you may still be charged a late fee.
Whenever your credit card balance exceeds your credit limit, you can be charged an over-the-limit fee. Some credit card issuers like American Express and Discover have stopped charging an over-the-limit fee to cardholders who go over their credit card balances. Starting February 22, 2010, card issuers must ask you if you want them to approve over-the-limit charges. If you say “no,” those charges will be declined and you can avoid the fee.
A cash advance fee is charged when you take out a cash advance against your credit limit. Credit card convenience checks, sometimes included with your billing statement, are often treated as cash advances. Certain types of purchases, like lottery tickets and cash advances, are also considered cash advances. The cash advance fee could be a flat fee, like $50, or a percentage of the cash advance, like 3%.
A balance transfer fee is assessed when you transfer balances from one credit card to another. Like a cash advance fee, this fee might be a flat fee or a percentage of the balance being transferred. Note the balance transfer fee is charged by the credit card receiving the new balance.
If your bank returns your payment check for non-sufficient funds, your card issuer might charge a return check fee. Avoid this fee by making sure you have enough funds in your account to cover all your pending transactions.
The finance charge is a monthly interest charge that’s assessed whenever you carry a balance beyond the grace period. Finance charges are based on your account balance and annual percentage rate (APR). The higher your balance and APR, the higher your finance charge will be. You can avoid a finance charge by paying your account in full before the grace period ends.
The inactivity fee is a relatively new fee that’s charged by credit card issuers to penalize cardholders who don’t use their credit cards. Use your card periodically to avoid being charged an inactivity fee. Make small purchases on your credit card and pay them off when the bill comes.
An application fee is charged when you apply for a credit card. Some credit card issuers charge an application fee and some do not.
Foreign transaction fee, also called a currency conversion fee, is charged when you use your credit card in a foreign country. Fees range between 1% and 3% of the transaction. Read your credit card agreement to learn whether your credit card charges a foreign transaction fee. Currently, Capital One is the only credit card issuer that doesn’t charge this fee.
Watch Out for Hidden Credit Card Fees
Some credit card companies charge fees for things that cardholders would consider a convenience. For example, you may be charged a fee to receive a duplicate billing statement or to make your credit card payment over the phone. You could be charged a fee for a replacement card or to add an authorized or joint user to your account. Note that after February 22, 2010, credit card issuers can’t charge you for making a payment, regardless of the method, unless it’s an expedited payment.
When you sign up for a credit card, read through the credit card disclosure to get a listing of most fees associated with the card. Once you start using a credit card, continue to watch your billing statement every month. If you find unexpected fees, call your card issuer for an explanation and details about getting the fee waived and avoiding it in the future.
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