A typical credit card can have an annual fee, a cash advance fee, a foreign transaction fee, a balance transfer fee, and a late payment fee. Fortunately, many credit card users go years without incurring any of these fees. How do they do it? The key is to select low-fee cards, then use your leverage as a customer to request waivers from the fees you do incur.
5 Main Types of Credit Card Fees
Different companies and types of cards have varying fees. These are the 5 main fees you need to know about:
The most common fees paid by credit card customers are for late payments, according to research from CreditCards.com, a top resource for the credit card marketplace. When you pay past the due date, your credit card company can charge up to $29 for that first delinquency.
If you pay late again within a six-month period, the card issuer can charge up to $40 for the late fee. Even though paying just a few days or a week late consistently won’t show up on your credit report, you can easily rack up hundreds of dollars annually in late payment fees.
The easiest way to avoid late fees is, not surprisingly, to always pay your bill on time. Try to keep up with your billing cycles the best you can. But since everyone makes mistakes, you can get late fees waived just like annual fees. While a few cards don’t charge late fees, most do. So, simply call your card issuer and request to waive them. Nearly all card issuers will do this as a one-time courtesy to customers who are otherwise in good standing.
Annual fees should be no surprise since they’re clearly stated in the credit card terms and conditions. If the card has an annual fee, you probably paid it when you signed up for the card and then forgot about it until a year later, when it popped up on your credit card statement.
Some cards charge you yearly just for having an open account, even if you don’t use the card. Depending on the rewards and how much you are charging on the card, this may or may not be worth it. How do you know when the fees are worth it? The rewards you earn on the card should make up for the fees and then some. If you are paying $400 per year to use a rewards card, you should be spending enough to earn over $400-worth of rewards.
To make sure you’re not taken by surprise when your card’s anniversary rolls around, budget ahead for the annual fee so you can pay it off the same month you’re billed.
There are two simple, proven ways to avoid annual credit card fees. The first is the easiest: Just choose from one of the many cards that don’t have annual fees. While there’s no shortage, the best rewards programs tend to charge annual fees. If you do the math and figure you’ll save more than you’ll spend, look for rewards credit cards that come with the first year’s fee waived. There are quite a few.
The other way to avoid annual fees almost sounds too easy to be true: Call the card issuer and ask to have it waived. You should calmly mention you’re considering canceling the card. Immediately, you’ll be transferred to the “Retentions Department.” In return for your commitment to renewing the card, these representatives are empowered to waive annual fees or offer rewards that are at least as valuable.
Balance Transfer Fee
Credit card companies charge this fee anytime you move a balance from one card to another. It’s usually a percentage of the amount you transfer.
Credit cards with promotional financing offers are a fantastic way to avoid interest charges, but nearly all will add a balance transfer fee ranging from 3% to 5% of the amount transferred. The other way to avoid this fee: Get a card with promotional financing on new purchases before going into debt. This way, you can still enjoy interest-free financing without having to transfer a balance in the first place.
For example, if you transfer a balance of $5,000 and the transfer fee is 5%, you’ll pay $250 to transfer the $5,000 balance. Even so, paying this fee could still be worth the cost if you would have paid more than $250 in interest on the previous card.
Cash Advance Fee
Next time you think about grabbing quick cash with a cash advance at an ATM, consider finding a different way to pay for what you want. You’ll nearly always pay a steep price for the convenience of a cash advance.
Your credit card company may charge up to $20 or more in upfront fees when you take a cash advance, according to major credit bureau Experian. In addition to typically paying a higher interest rate on a cash advance amount – more than 25% with some cards – you can also tack on the transaction fee charged by the bank that operates the ATM.
This fee applies when you make a cash advance transaction. Examples of cash advance transactions include:
- Withdrawing cash with your credit card
- Overdraft protection
- Credit card convenience checks
While a select few cards (such as the PenFed Promise) don’t have a cash advance fee, you should always avoid using your credit card at an ATM. In addition to cash advance fees, transactions at ATMs will immediately starting incurring interest — and will likely charge a higher interest rate. The least expensive way to access cash at home and abroad will always be to use your bank’s debit card.
Foreign Transaction Fee
Some cards charge a percentage of your transaction if you buy something in a foreign currency.
Most credit cards impose a 3 percent foreign transaction fee on all charges processed outside of the United States. Thankfully, many cards today don’t have this stupid fee. Choosing one of these cards is the best way to consistently avoid this fee, but there are reports of card issuers waiving it on request.
Are credit card fees making your debt harder to deal with? We can help.
Other Credit Card Fees
The top five fees are the most important ones to know when you are looking for a credit card. Here are some other kinds of fees to keep in mind:
Expedited Payment Fee
If you’re running behind schedule and you need to expedite your credit card payment so it isn’t late, you may be charged an expedited payment fee. This costs less than paying the fee for a late payment.
This is the fee you’ve most likely already heard of. It’s the interest charge that applies to the balance you carry from month to month.
When your credit card balance exceeds your card’s credit limit, the issuer may charge an over-the-limit fee of around $25 the first time that happens and $35 each time it happens again within a six-month period, according to personal finance site Bankrate.
However, the over-the-limit fee shouldn’t be more than the amount you are over. For example, if you go $20 over your credit limit, that amount is the maximum your credit card issuer can charge.
Returned Check Fee
Sending a check or paying with your debit card online when you’re not 100% certain you have enough to pay the bill may seem like a good way to avoid getting stuck with a late payment fee. But if that payment doesn’t clear your bank, the credit card company may charge a fee anyway, this time for a returned payment.
The average credit card returned payment fee is about $34, according to the 2019 U.S. News Consumer Credit Card Fee Study. To make matters even worse, if the returned payment delays payment further, the credit card issuer could also slap on an additional late payment fee.
If you have a low credit score, you might be charged just for applying for a credit card.
Credit Limit Increase Fee
Some companies will charge you when you ask to have a higher credit limit.
Card Replacement Fee
If it’s been a short time since you last had your credit card replaced, your credit card provider may charge you to have it replaced again.
What to look for
Knowing about the different types of fees makes it easier for you to dig through the jargon and find the credit card that’s best for you. Here are a few things you should definitely look for:
No Annual Fees
When you’re shopping around for a credit card, make sure to check the terms for an annual fee. Cards with no annual fee, or a low annual fee that can be offset by rewards, are best.
Cards with low-interest rates mean fewer interest fees down the road when you carry a balance.
No Application Fee
This is pretty self-explanatory. If you have a reasonably good credit score, you should never have to pay an application fee for a credit card.
What to avoid
Exceeding Your Limit
Even if your company won’t charge you a fee for going over your limit, you should always avoid it. It means you are using way too much of your credit and may be overspending.
Carrying a Large Balance on a Card with High APR
If you have a high APR, it’s best to pay off as much as you can (if not all) of your balance every month.
Return Check from Badly Timed Autopay
Auto-paying your bills can be very convenient. But if you have an irregular income or simply bad luck with the timing, your credit card payment could bounce.
Credit Card Processing Fees
Whether you are the one selling or the one buying, credit card companies will often try to garnish a fee from your transactions.
Processing Fees for Consumers
Be wary of processing fees when you are making credit card purchases. Especially when you are paying bills online; this can make a big difference. For example, your $46 water bill can turn into $50 when your provider adds a $4 fee to cover credit card processing. To avoid these kinds of fees online, see if you can use an e-check to pay instead.
Processing Fees for Merchants
If you are a retailer or independent business owner, part of your sales from debit and credit cards will go to the payment processor. These are called interchange fees. They help processing companies cover the risk of these purchases. Debit cards are less risky, so their processing fee is usually lower than that of credit cards. The average interchange rate is 2% per transaction. You may also have to pay monthly fees to the processors you choose to accept.