As much as Americans love to use credit cards – we have nearly $1 trillion in credit card debt to prove it – you’d think more of us would be well versed in the myriad of fees that often pop up on our monthly statements. But alas, many of us might find ourselves surprised at what extras are contributing to our balance’s bottom line. Sneaky little buggers those fees, aren’t they?
To be fair, all of these up-front and potential fees are disclosed properly in the information your creditor will send to you along with your shiny new plastic. But let’s be honest, do we really read all of that, or even some of it? Likely not.
Well, to help you better understand what fees may be lurking and how to sidestep them, or at the least determine if they’re a smart financial tradeoff, here’s a quick rundown of the most common ways credit card companies loves to slip in extra expenses that you can (usually) do without.
- The annual fee. This is the yearly fee attached to some credit cards, usually those that offer some sort of bonus or rewards program. These fees can run you anywhere from $50 to $500 each year –that’s a whopper of a fee! – So finding out the exact amount is the first step to determining whether or not you want to apply for the card. Secondly, get straight about what rewards the card offers and figure out if this will mathematically benefit you in the long run, meaning, will you earn enough from your rewards to make the yearly add on worth it?
- Cash advance fee. This is a charge attached to cash advances you take out on your card. The fees can range anywhere from 3-5 percent of your withdrawal, which is never fun, but where they really get you is in the interest rate your creditor will charge you on the amount you took out. This rate is typically much higher than your normal purchase interest rate and is likely to drive up your balance quickly as any money you pay on the card will first be applied to purchases you made, not to money taken out on a cash advance. This means that high interest rate you’re hit with every month on your borrowed money will likely impact your balance for months or even years to come. Best advice here is to have an emergency fund in savings should you need quick money so you can avoid cash advances like the Plague.
- Balance transfer fee. When you transfer money from one card to another, the creditor taking over the debt will often charge a fee, usually in the range of 3-5 percent. Of course, some cards don’t charge balance transfer fees so that might be a bit of research worth doing when considering transferring your money from one card to another, particularly when you’re doing so in an attempt to save money with a lower-interest card or one offering zero interest for a fixed amount of time.
- Foreign transaction fee. When traveling overseas and using your credit card, the last thing you need is an extra fee attached to your purchases, but that’s just what could happen if this is your plastic’s policy. Typically fees can be anywhere from 1-5 percent of the cost of your purchases so it’s definitely something to be aware of. However, some cards such as Discover and Capital One refrain from this charge and, if you’re inclined to international travel, such cards would be wise to consider.
- Interest fees. This should be obvious but where such charges can be tricky is in circumstances of balances that previously carried no interest during a grace period and then reverted to interest fees. If any of your balance is under a no-interest grace period it’s important to know when that period ends so you can be aware of upcoming interest fees and make plans accordingly, either to pay off your remaining balance before it reverts to taking on interest or to up your monthly payment to cover the new charges. Even if you don’t have any zero-interest debt, you can always pay your balance in full each month and avoid interest charges altogether.
- Late payment fee. It’s simple, if you don’t pay your bill on time your credit card provider will slap you with a fee, usually around $25. Late fees can also do damage to your credit score. How to avoid this? One word: autopay. This should be one of the first things you do when you set up your online account. It saves you money and affords you peace of mind. Also keep in mind some cards don’t charge a late payment fee so that’s something to consider when choosing your plastic poison. Finally, if you’re a first-time offender, many creditors will forgive the fee if you call and plead your case.
- Over limit fee. This pesky little fee is even sneakier than the rest, especially if you don’t pay appropriate attention to your balances or track your purchases. Counter this by monitoring your balance regularly and doing your best to stay far from your spending limit.
- Returned payment fee. This happens if your check to cover your monthly payment bounces. A common charge is around $35 but make sure to check with your card issuer for the exact amount. Like with any other check you write or before any online payment you make, being aware of how much money you have available and how many outstanding debits you have should ensure you have funds enough to cover your payment.
Using and managing your credit card usage is always important, as it can have a major impact on your financial health. If you have any questions about how to better manage your credit card debt or how to eliminate it completely, the folks at American Credit Foundation can help you on your way. Give us a call at 1-800-898-0534 or drop us a line and we’ll be happy to help.