While credit cards are a great asset, they often come with numerous fees that can add up to significant charges if you miss a payment, spend over your limit or take other actions outside of normal purchases.
When you apply for a credit card, there are many terms and conditions you have to acknowledge, and if you're approved, you'll receive a lengthy cardholder agreement in the mail. These documents outline all the fees you may be charged by using your credit card.
It's important to be aware of the various fees you may incur so you can minimize charges or avoid them altogether.
Below, we break down the most common credit card fees and how you can avoid them, potentially saving you hundreds of dollars.
8 common credit card fees
- Annual fee
- Interest charges
- Late payment fee
- Foreign transaction fee
- Balance transfer fee
- Cash advance fee
- Over-the-limit fee
- Returned payment fee
1. Annual fee
Many credit cards charge a fee every year just for having the card. Annual fees typically range from $95 to upwards of $500. Most cards charge the same fee every year, though some cards may waive the annual fee for the first year you hold the card.
How to avoid annual fees: If you don't want to pay a fee to have a credit card, simply opt for a no-annual-fee card. The Citi Double Cash® Card (see rates and fees) is our top pick for consumers with excellent credit looking to earn cash back. Alternatively, if you have fair or average credit, you can consider the Capital One QuicksilverOne Cash Rewards Credit Card.
And if you already have an annual-fee card, consider asking for a retention offer or downgrading to a lower or no-annual-fee alternative.
2. Interest charges
Credit cards charge interest if you don't pay off your balance in full each billing cycle. The amount of interest you're charged is listed on your cardholder agreement as your annual percentage rate (APR).
Most cards charge variable APRs, which fluctuate with the prime rate, whereas some cards have fixed APRs that don't change with the prime rate. But since your APR is likely variable, refer to your online account and/or your most recent bill to see what APR you're being charged each billing cycle.
Keep in mind that certain actions aren't included in the grace period, such as taking out a cash advance. In this case, you would accrue interest from the day you withdraw money.
How to avoid interest charges: Paying your bill in full every month is the simplest way to avoid interest. If you can't afford to pay your bill in full, reduce your spending or consider a 0% APR card that doesn't charge interest for up to 21 months.
If you have fair or average credit, check out the Capital One QuicksilverOne Cash Rewards Credit Card whereas if you have good creditor excellent credit, you can consider the U.S. Bank Visa® Platinum Card.
Keep in mind, 0% APR cards provide temporary relief from interest. They still require you to make minimum payments and pay your balance in full before the intro period ends to avoid interest altogether. (Learn more about how 0% APR cards work.)
3. Late payment fee
Every time you pay your credit card bill late, you'll incur a fee that ranges from up to $8 for first-time instances and up to $40 for subsequent violations made within six billing cycles.
How to avoid late payment fees: You can open a credit card that has no late fees, such as the Petal® 2 "Cash Back, No Fees" Visa® Credit Card if you have no credit history or the Citi Simplicity® Card for good to excellent credit (see rates and fees).
However, we recommend you consistently make at least the minimum payment by your due date. This allows you to have a positive payment history, which is the most important factor of your credit score. You can set up autopay for your minimum due to make sure you're never late.
4. Foreign transaction fee
When you make purchases outside the U.S. you may incur an additional fee each time you swipe your card. Typically, this fee is around 3% per transaction.
How to avoid foreign transaction fees: Consider credit cards with no foreign transaction fees, such as the Capital One Platinum Credit Card if you have average credit.
5. Balance transfer fee
When you transfer debt from one credit card to another card, you'll typically incur a 3% to 5% fee per transfer, with a $5 or $10 minimum fee.
How to avoid balance transfer fees: While balance transfer fees can often be outweighed by the amount of money you save during the interest-free period, you can check out cards that have no balance transfer fees. These cards typically require good to excellent credit.
6. Cash advance fee
Cash advances may seem like an easy way to get cash fast, but come at steep costs. Card issuers typically charge a 3% or 5% fee per cash advance which can add up if you withdraw hundreds of dollars.
How to avoid cash advance fees: Instead of taking out a cash advance, consider borrowing money from family or friends or take out a personal loan (which usually offer better terms).
7. Over-the-limit fee
Card issuers may charge you for exceeding your credit limit, though the fee can't be greater than the amount you spend over your limit. This fee is a bit different than others because you have to opt in to approve it, according to theCARD Act of 2009. Normally, your creditor denies your transaction when you try to spend over your limit, but for a fee of up to $35, you can opt in to have these transactions get approved.If you don't opt in, your card issuer will simply decline any purchases you try to make over your limit.
How to avoid over-the-limit fees: Don't opt in to over-the-limit fees since there's little benefit. You should avoid spending up to your credit limit and keep the amount of credit you use below 10%. You can also set alerts for when you're approaching your credit limit, so you can easily keep track of how much you're able to charge to your card.
8. Returned payment fee
If you schedule a payment for your credit card bill, but don't have enough money in your bank account, your payment may be returned. As a result, your card issuer may charge you a returned payment fee, usually up to $40.
For instance, if you schedule a $750 bill payment with only $500 in your checking account, you could be hit with a $40 fee from your card issuer that is tacked onto your bill.
How to avoid returned payment fees: Verify that you have sufficient funds in your bank account before you schedule any payments.
Bottom line
Credit cards charge a lot of fees that may seem negligible in the short-term, but can cost you in the long-run. It's a good idea to familiarize yourself with the fees we've explained above and the actions you can take to avoid them. Paying on time, checking that you have enough money in your bank account and spending within your credit limit are just a few simple ways you can minimize costly fees.
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Petal 2 Visa Credit Card issued by WebBank.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
