Upon taking a look at the terms and conditions on a prospective credit card, you’re bombarded with various types of fees. Whether it be an annual fee or a late fee, it can be hard to keep track of all the various charges on credit cards and how to avoid them.
In this article, we’ll break down some common charges on credit cards and explain why you might be charged with certain fees. Not only will this make you a more educated credit card user, but hopefully these breakdowns will also help you save money.
The Annual Fee is the most common type of credit card charge and is an important factor to consider. Some cards may come with no annual fee, like the Citi Diamond Preferred Card, or may come with a hefty $695 annual fee like the American Express Platinum Card. As you can see here, the range of annual fees varies greatly from card to card.
While some people may gravitate towards cards with no annual fee because it’s cheaper, this isn’t always the best idea. At times, it is worth incurring an annual fee to receive more cash back, better travel rewards, or lower interest.
Finance charges are charges that cardholders must pay on any unpaid balances once the grace period ends. Generally, grace periods will last about 3 weeks and cardholders won’t be charged any interest on their card balance during the grace period. Finance charges can certainly be avoided by paying your monthly balance in full and being a responsible card user. If you repeatedly leave parts of your balance unpaid, finance charges can add up and run cardholders into debt. It’s best to avoid taking on finance charges in the first place by practicing responsible credit card habits
A late fee is charged when cardholders miss their billing statement due date or fail to pay the minimum amount due on their card statement. Late fees are usually capped at $40, however exceptions can arise. Like finance charges, it’s best to avoid incurring late fees at all by making sure to pay your credit card balance on time at the end of each billing period.
Foreign Transaction Fee
Foreign transaction fees can be especially annoying for people who travel frequently or like to stay abroad. These fees are usually 3%, but don’t let this small number fool you. Foreign transaction fees can definitely add up over time. So for travelers or frequent fliers looking at a prospective credit card, make sure it has no foreign transaction fee.
Over-limit fees are charged when the credit card balance exceeds the maximum credit limit of the card. In other words, you face an over-limit fee when you spend more than you’re allowed to. Cardholders can easily avoid this fee by monitoring their spending habits and ensuring that their purchases are well below the maximum credit limit. It is also worth mentioning that over-limit fees are generally not as popular as they once were, and credit card companies may find other ways of punishing cardholders for spending more than the maximum credit limit.
Cash Advance Fee
Cardholders will incur a cash advance fee if they borrow money in cash from their credit card. You can also think of it as using a credit card to buy cash. Cash advance fees vary from credit card and will be charged interest as well. As a result, cardholders looking to avoid a cash advance fee should keep extra money in a savings account to be deposited at any time.
Balance Transfer Fee
A balance transfer fee is charged when a cardholder transfers a balance from one credit card account to another. The balance transfer fee will generally have a similar interest rate to either the cash advance APR or the purchase APR. However, many credit cards offer an introductory 0% APR on balance transfers, so cardholders can take advantage of introductory offers to save money on balance transfers.
Returned Payment Fee
A returned payment fee occurs when the payment made on a credit card balance isn’t valid. For example, if you pay your monthly statement through a bank account that has insufficient funds, you may face a returned payment fee. This can be easily avoided by ensuring that you use a valid payment system each time to pay the credit card balance.
As you can see from this article, credit cards come with a lot of fees. However, they can easily be avoided through responsible credit card practice. When considering a credit card, it’s important to look at the terms to make sure that there aren’t any hidden fees waiting for you.