With prices on the rise, many Americans are looking to cut down on their expenses. But one common expense that can often fly under the radar: credit card fees.
When you use a credit card, you’re borrowing money from your credit card issuer to expand your purchasing power, build credit, or both. Just pay your credit card bill every month by the due date, and all is well and good, right?
Except there’s more to making timely payments every month to avoid a late fee. For example, overspending could result in an over-the-limit fee. Transferring your credit card debt to take advantage of a promotion may come with a balance transfer fee.
According to the Consumer Finance Protection Bureau (CFPB), from 2018 to 2020, Americans paid roughly $120 billion per year in credit card interest and fees. That translates to about $1,000 annually for each American household.
Fortunately, many of these credit card fees are avoidable. Some may even be negotiable. There are, however, certain fees you can’t avoid depending on the type of card you own. Here are the most common credit card fees and how they work.
The 8 most common credit card fees
The types of fees and the amount you can expect to pay will vary depending on your credit card company, type of credit card, and usage.
Say you own a travel card with a long list of rewards or apply for a balance transfer card to liquidate your existing balance. These types of credit cards will likely charge a fee for the extra benefits they provide. For example, a travel credit card may charge an annual fee, but the rewards you earn may pay for your family’s annual vacation. In exchange for a zero-interest annual percentage rate for a promotional period (like 12 months), you pay a balance transfer fee of 3%.
However, there are certain fees you can avoid, like late payment fees or foreign transaction fees, by tailoring your spending to avoid them.
1. Annual fees
An annual fee is a fee your credit card company might charge for extra perks and benefits like cash back, points, and rewards. A CFPB report found the average annual fee hit $94 in 2020, though there are credit cards with annual fees that climb well into the hundreds. Typically, the more lucrative your credit card rewards, the higher the annual fee you can expect to pay.
For example, the Capital One Venture Rewards Credit Card charges a $95 annual fee and allows cardholders to earn 5 miles per dollar for purchases (hotel and car rental only) made through the Capital One Travel portal using their Rewards card account. However, for cardholders who don’t mind paying a higher fee of $395, the Capital One Venture X Rewards Credit Card offers 10 miles per dollar on hotels and rental cars and 5 miles per dollar on flights booked through Capital One Travel using their rewards card account.
Chase offers similar rewards cards with varying annual fees. With the Chase Sapphire Preferred® Card, which has a $95 annual fee, cardholders can earn 5x total points on travel purchased through Chase Ultimate Rewards® and 2x on other travel purchases. For a higher annual fee of $550, the Chase Sapphire Reserve® credit card offers 5x total points on flights and 10x total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards (after the first $300 is spent on travel purchases annually).
2. Balance transfer fees
If you carry a credit card balance, a balance transfer card allows you to transfer other credit card debt, usually to get a more favorable APR and save money on interest for a set period. A balance transfer fee is paid to the new credit card issuer, usually around 3%–5% of the total balance you’re transferring.
3. Credit card processing fees
A credit card processing fee is a small per-transaction fee, usually up to 3.3%, that merchants pay your credit card company to process your transaction. This fee is typically split between the issuing bank or financial institution that issued your credit card, one of the four major credit card networks (Visa, Mastercard, American Express, or Discover), and the financial services company that processed the transaction.
Common payment processors include Helcim, Square, and Stax.
4. Late fees
Credit card companies may charge you a late fee for missing a payment or failing to make the minimum payment on your due date. Not all credit cards, such as the Citi Simplicity Card or the Apple card, charge a late fee.
Some credit card issuers may offer grace periods or waive the fee for first-time offenders with a good payment history. Others charge the maximum late fee set by the CFPB. As it stands, credit card issuers can charge a late fee of up to $41.
5. Interest fees
You may notice interest charges on your monthly statement if you fail to pay off your balance in full by your payment due date. Your fee will depend on your credit card’s annual percentage rate and the balance you’re carrying over from month to month. In most cases, credit card interest rates are variable rates that can fluctuate over time.
6. Foreign transaction fees
A foreign transaction fee is a charge for purchases made outside the U.S. or from a foreign merchant. However, many companies that issue travel credit cards offer cards that don’t charge foreign transaction fees, including the Citi Premier® and The Platinum Card® from American Express (see rates and fees). Capital One, Chase, and other card issuers also offer cards with no foreign transaction fees. The average foreign transaction fee ranges between 1%–3% per transaction.
7. Cash advance fee
In the same way you can make a cash withdrawal from your debit card, you can also withdraw funds from your credit limit. This can be handy in a pinch, but unlike the withdrawals you make from your checking account, your credit card issuer will charge a fee for this service. Typically, this is expressed as a flat fee or a percentage of the amount withdrawn.
It’s unlikely your issuer will ever waive this fee, but you can avoid a hefty fee by only withdrawing cash in small amounts and not making cash advances a regular habit.
8. Returned payment fee
A returned payment fee occurs when a payment bounces due to insufficient funds, or the account is closed. The exact amount depends on your credit card company, so you’ll need to read your terms and conditions to see if and when a fee applies.
Let’s say you set up automatic payments to pay your credit card’s last statement balance, but you forgot you made a large purchase last month. This month you don’t have enough funds to cover the full amount due. If your bank declines the payment, this action could result in a one-time returned payment fee on your next credit card statement (in addition to a late payment fee).
Like late fees, you may be able to negotiate your way out of paying the fees. You can always call your credit card issuer to explain the situation, and you may find they’ll offer to waive the fee as a courtesy. The worst thing they can say is no.
How to save money on credit card fees
Credit card fees might not break the bank, but over time, these charges can add up and put a dent in your budget. What’s more, if these fees become unmanageable and you can’t keep up with the payments, your credit score could take a hit when those missed payments appear on your credit report.
While not all fees can be avoided, there are ways to prevent paying additional — and preventable — credit card fees.
Pay your balance in full each month
The easiest way to avoid extra fees is to only spend what you can comfortably afford to pay off each month. Carrying a balance over from month to month will result in interest charges and late fees if you fail to make your payment on time.
Make it a point to check your balance periodically to get a sense of how much you’ve spent. That way, when your payment due date rolls around, there are no surprises, and you can pay the balance in full.
Review your credit card terms and conditions
It’s never a bad idea to carefully review your credit card agreement and pricing structure. Again, there will be fees you likely can’t avoid, but this should give you essential information about what kinds of fees you can expect and how much you’ll be charged. Then, you can tailor your spending habits to avoid racking up any extra costs.
Consider a card with no foreign transaction fees
Do you have a travel bucket list? Or do you love to shop from merchants abroad? Foreign transaction fees can add up, but they don’t have to.
The four major credit card networks have a global reach and are often accepted when traveling or shopping abroad. Many credit cards offered by these networks don’t charge a foreign transaction fee.
Popular card options you might consider include the Capital One SavorOne Cash Rewards Credit Card, the Chase Sapphire Preferred® Card, or the Bank of America® Travel Rewards credit card.
Determine whether an annual fee is worth the cost
An annual fee, while technically an added expense, can also be a money saver depending on your spending habits. However, if you’re not using the card much, the costs may overshadow any benefit.
Take some time to review your credit card rewards program and think about whether those perks reward your regular spending. If you decide that your annual fee isn’t helping you rake in major savings, it might be time to consider downgrading to a card without a fee. But if you’re a frequent traveler and your credit card offers free checked baggage, you might save more money over time, even after paying that annual fee.
For example, the AAdvantage® Aviator® Red World Elite Mastercard® charges an annual fee of $99. However, cardholders get their first checked bag free, plus those of up to four traveling companions on the same domestic American Airlines reservation.
Currently, American Airlines charges $30 for each traveler’s first checked bag. If you’re traveling solo, your annual fee will pay for itself after just four flights — even sooner if you’re traveling with friends or family on the same reservation.
Check your monthly statements
An easy way to keep things in check is to set up spending alerts and automatic payments to avoid late payment fees and steep interest charges. Monitoring your monthly credit card activity will not only help you catch unauthorized purchases but also it will keep you up to date on your balance so that you can easily avoid spending more than your credit limit and catch any fees you may be unknowingly charged. This will help keep your monthly budget in check and protect your credit score long-term.
Best practices to avoid paying monthly fees
While it’s impossible to predict how fee structures will change over time, there are moves you can make as a consumer to avoid the added cost.
Try to pay off your credit card balance in full every month — you’ll save the most this way, especially if your card has a higher interest rate that can quickly compound your debt. Otherwise, pay the minimum balance by the due date and ensure you have sufficient funds.
Review your credit card issuer’s terms and conditions to avoid inadvertently accruing avoidable fees. Be sure you’re using the right type of credit card for your purchases, like a travel card that doesn’t charge foreign transaction fees. You can also consider applying for a new card that better fits your spending habits.
Finally, don’t be afraid to reach out to your credit card issuer if you made an honest mistake (like miss a payment). Some fees can be negotiated, but you’ll never know unless you ask.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers.
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