Understanding and Avoiding Common Credit Card Fees

While a credit card offers convenience, rewards, and the ability to build credit, it is also a financial tool that comes with a variety of potential fees. Many of these charges are avoidable, and understanding them is the first step toward keeping more money in your pocket. This guide will walk you through the most common credit card fees, how to spot them, and what you can do to minimize or eliminate them. For advice on which cards offer the best value based on your specific needs, be sure to read our Guide to Using Credit Cards for Specific Spending Habits.

Common credit card fees to watch out for

Credit card fees can be categorized into three groups: standard usage fees, special service fees, and punitive fees.

Standard usage fees

Annual Fee: A yearly charge for holding certain credit cards. These are common on premium rewards cards that offer valuable perks like airport lounge access, extensive travel insurance, or higher rewards rates.

• How to avoid: Opt for a card with no annual fee if the rewards or benefits don't outweigh the cost for your spending habits.

Interest Charges (APR): The cost of borrowing money if you don't pay your balance in full each month. The annual percentage rate (APR) can vary widely and is applied to any balance carried over after the grace period.

• How to avoid: Pay your balance in full by the due date every month. If you carry a balance, a 0% introductory APR card can provide a temporary reprieve, but you must pay off the balance before the offer expires.

Special service fees

Foreign Transaction Fee: A fee charged by some issuers when you make a purchase in a foreign currency or through a foreign bank. The fee is typically 1% to 3% of the transaction amount.

• How to avoid: Use a credit card with no foreign transaction fees, a feature common on many travel rewards cards.

Cash Advance Fee: A fee for using your credit card to withdraw cash. Interest on cash advances also typically begins to accrue immediately, often at a higher rate than for purchases.

• How to avoid: Never use a credit card for a cash advance. Use a debit card or another method for cash withdrawals.

Balance Transfer Fee: A fee, typically 3% to 5% of the transferred amount, charged when you consolidate debt from one credit card to another.

• How to avoid: You can sometimes find cards with a 0% introductory balance transfer fee, though offers vary. For more on this, see our article on The Basics of a Credit Card Balance Transfer.

Punitive fees

Late Payment Fee: A fee charged when you miss your minimum payment by the due date. A late payment can also trigger a penalty APR and severely damage your credit score.

• How to avoid: Set up automatic payments to ensure you never miss a due date.

Returned Payment Fee: A fee incurred when your credit card payment is returned due to insufficient funds in your bank account.

• How to avoid: Always ensure you have enough funds in your bank account to cover any scheduled credit card payments.

Over-the-Limit Fee: A fee charged for exceeding your credit limit. This is only possible if you have opted in to over-limit protection.

• How to avoid: Do not opt in to over-limit protection. Most issuers will simply decline any transaction that pushes you over your limit, with no fee.

Strategies for minimizing and negotiating fees

Read the fine print: All fees and terms are detailed in the "Schumer Box" of your credit card agreement. Review it carefully before you apply.

Use your credit responsibly: Avoiding interest and punitive fees is all about responsible card use. That includes paying your bill on time and keeping your credit utilization low, habits that also positively impact your credit score. To learn more, read our guide on How Your Credit Card Affects Your Credit Score.

Call and ask for a waiver: If you have a strong history of on-time payments and accidentally incur a late fee, it's worth calling the issuer to ask for a one-time waiver. Many companies will grant a courtesy waiver to a good customer.

Evaluate annual fees: If you have a rewards card with an annual fee, periodically evaluate whether the rewards you're earning outweigh the yearly cost. If not, consider a no-annual-fee alternative.

Final thoughts on fees

Credit card fees are not always a sign of a bad deal, but they should never be a surprise. By understanding what different fees are, where they apply, and how to avoid them, you can maximize the value of your credit card without losing money to unnecessary costs.

Related credit card topics

Guide to Using Credit Cards for Specific Spending Habits

A Student's Guide to Getting Their First Credit Card

Choosing the Right Business Credit Card

Found this guide helpful? Bookmark it for future reference as you continue your financial journey!

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