If you’re a frequent credit card user, it’s important to understand the kinds of fees you can be charged when using your card. Those fees can really add up, on even the most basic credit cards. Fortunately though, many or most of them are avoidable. Here’s a rundown of the most common credit card fees, and how you can best avoid paying them.
Late Payment & Returned Payment Fees
Late fees are charged when you don’t make at least the minimum payment on your card by the due date. The Consumer Financial Protection Bureau caps the fee at $27 for the first late payment on an account, and $38 for each subsequent late payment, for up to the next six payments.
After 30 days in which no payment has been made, your bank may report the late payment to credit bureaus. On-time payments are the most important factor in your FICO credit score, comprising 35% of the overall score. Even a single late payment may have a significant impact on your creditworthiness.
As you’d expect, the easiest way to avoid credit card late fees is to pay your credit card on time. Due dates fall on the same day of every month. Should the due date for the month fall on a non-business day, the payment must be received by the next business day.
If you happen to miss a due date, make the payment as soon after it as you can. It’s then wise to call your bank and explain why you missed a payment. Your bank may reverse the fee if the reason is compelling, especially if you have a record of paying your credit card bill on time.
Returned payment fees are charged when a check or bank-transfer payment bounces. This usually happens when you write a check that’s larger than the available balance in your checking account. These fees vary from bank to bank, but typically range between $25 and $35 per occurrence.
Avoid this fee by always checking your bank account balance before you make a credit card payment. If you use autopay to pay your credit card bills, make it a priority to check your bank account balance before the automatic payment is triggered.
Interest charges
Interest fees are charged when you carry a balance on your credit card from one billing cycle to the next. Interest rates vary by credit card, and you can check yours by calling the number on the back of your credit card.
Most credit card issuers offer a 21 to 25 day grace period, within which you’re not charged interest on the balance after your statement closes. As a rule, this grace period coincides with your credit card’s payment due date. If you pay your balance in full by that date, you’re not responsible for paying interest on the card’s statement balance. However, if you don’t pay in full, you’re responsible for interest on whatever you charged.
For example, if you have a $1,500 credit card balance and make a $1,500 payment, you won’t be charged any interest on your next statement. However, if you only make a $1,000 payment and charge $600 in new purchases the next month, you’re responsible for paying interest on the $500 remaining balance and the $600 in new purchases.
In addition, your grace period may be removed for the coming month, which means interest will continue to accumulate during those 20 or so days. You can usually reinstate your grace period by paying your credit card in-full consecutively for one or two billing periods. Check your credit card’s terms or call your bank for details on reinstating your grace period.
You can, of course, avoid incurring interest charges by paying off your credit card on time and in full every month. If that’s not possible, consider opening a 0% APR balance transfer card. These credit cards offer a promotional period (usually 12 to 24 months) during which interest isn’t charged on the account’s balance. After this period, you’re charged the APR you were initially approved for on the remaining balance, so make sure you pay off your card by the end of that time.
Balance transfer fee
If you decide to move your balance to a 0% credit card, you will likely be charged a balance transfer fee. This fee is typically 3% to 5% of the total balance transferred, with a minimum fee that’s usually around $5.
Be sure to take this cost into account before moving any credit card debt to a 0% balance transfer card. An online balance transfer calculator will help you to quantify whether paying a balance transfer fee will be less costly than continuing to pay down your debt at its current interest rate. To use these, you need to put your credit card’s interest rate, balance, the time period you need to pay down the balance, and the balance transfer fee charged by the new card. You’re then presented with a side-by-side comparison of the total cost of each option.
Foreign transaction fees
Foreign transaction fees are charged by certain credit cards when you make a purchase outside of the United States, even if the purchase is charged to the card inU.S. dollars. Some purchases made in the United States may be subject to these fees if they’re processed by a foreign bank. A common example of this is online purchases from a foreign company.
Foreign transaction fees typically run to between 1% and 3% of the total purchase price. If you travel often, consider applying for a credit card that has no foreign transaction fees.
Annual fee
Some credit cards charge an ongoing annual fee. This fee is most often found on travel credit cards that offer benefits like airport lounge access, premium rewards earning, and complimentary airline or hotel elite status. Annual fees generally range between $40 to $450, depending on the credit card and its benefits.
When you’re charged an annual fee, the amount typically appears as a charge on your first billing statement, and reduces your available credit by that amount. If the fee on your card is waived for the first year, the renewal is generally charged one year from the day in which the account was opened. Some credit card issuers charge the annual fee to the account as though it were a purchase, meaning that it will accumulate interest if you carry a balance from one statement to the next.
Credit card annual fees are worth paying if you take advantage of the credit card’s benefits and rewards. If you don’t find value in the benefits, all your bank and ask if they’ll offer you an annual fee waiver. If they won’t, consider canceling your account or converting it to an annual fee-free card. Be aware that if you cancel your card, you of course may lose the rewards that are associated with the account.
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