When used properly, credit cards can be good assets for building one’s credit. As many credit card users know, these assets often come with a lot of extra charges. Some of the common credit card fees include interest charges and annual fees. But many other fees can often creep up when using credit cards. If one is not cautious, these charges can easily pile on, making the card a major financial burden.
Penalty interest charges
When taking precautions for avoiding credit card hidden fees, penalty interest charges should be one of the top things to watch out for. Generally, everyone has to pay interest charges when a balance is carried on the card from one month to the next. But if one makes a habit of late payments, the interest rates may go higher than what was initially advertised by the credit card provider.
This penalty interest rate is also known as the penalty annual percentage rate or penalty APR. It is a fee that is charged by a card issuer whenever a customer misses several payments over a short period. The penalty APR replaces the regular rate or purchase APR and is usually 30%. This fee is generally hidden within the fine print of the credit card agreement. The easiest way to avoid this is to pay the card balance on time without any delay. Even making the minimum payment will keep one out of trouble.
Cash advance fee and interest rate
One of the top tips to prevent unexpected credit card charges is to look out for cash advance fees. These generally come up when the credit card is used to withdraw cash at an ATM. In most cases, the cash advance fees are a fixed percentage of the total amount that has been withdrawn. But some banks and institutions tend to charge a fixed fee, which is usually about $5 for withdrawals done domestically. For international withdrawals, the fee can be anywhere around $8.
In most cases, cash advance fees have a higher interest rate ranging from 20% to 24% compared to normal purchases. Some banks also charge this fee when making wire transfers, gaming transactions, money orders, and other cash-like transactions. A simple strategy to minimize these credit card costs is to avoid using the card for cash withdrawals and other cash-related transactions. Simply keep some spare cash to avoid the expensive addition to the credit card bill.
Late payment fee
The key to understanding credit card fee structures is to know how late payment fees do not only have an impact on the credit score but also on the wallet. For managing credit card expenses effectively, it is a good practice to avoid paying late fees as much as possible. This can be done by paying the credit card bill on time every month. Even if one is unable to pay the entire due amount, it can be useful to pay at least the minimum amount to avoid late fees.
Use calendar applications to set up payment reminders for the credit card. Enabling auto payments using online banking is also useful for directly paying off credit card bills and preventing late fees. But for this, it is crucial to ensure there is always adequate money deposited in one’s account.
Foreign transaction fee
For those who have to travel abroad frequently or buy products online from sellers of other countries, a top credit card fee to watch out for is foreign transaction fee, which is directly added to the credit card statement. Several major credit card providers charge this fee for transactions that are done in foreign currency. The fees generally differ across providers. But most of them usually charge around 2.5% of the total purchase amount.
For reducing these unnecessary credit card fees, get a card that does not have extra charges on foreign conversion fees when one has to travel abroad or make purchases through international shopping sites. There are several travel credit cards that one can opt for since these typically waive off the foreign transaction fees.
Balance transfer fee
Balance transfer cards are useful in handling debts involving high interest. This is because most of these cards typically have low introductory interest rates for a limited period. Many such cards have zero APRs, which help save a significant amount of money. While this can be helpful, such cards also require one to pay balance transfer fees when transferring the existing debt.
Often, the balance transfer fee is quite high and can only be found in the fine print of the credit card agreement. It is crucial to identify these hidden charges on credit cards. Further, these charges are mostly unavoidable, so it is important to read the agreement carefully and only get a card that has a minimal balance transfer fee.
Returned payment fee
This fee is charged when there are not enough funds in the checking account and a payment has been applied to the credit card balance. These charges vary depending on the credit card provider. To avoid paying this fee, make sure there is always adequate money in the bank account while paying the credit card balance.
In case there is a cash shortage, try applying for overdraft protection. Another solution would be to transfer money from one’s savings account to the checking account. Synchronizing credit card payments with the date on which one receives their paychecks can also help avoid this hidden fee.
