A credit card is a great tool to use to build your credit, but it can be expensive to use if you consider all the fees some credit cards have and you can know exactly what these expenses are by using a credit card payoff calculator.
Using a credit card wisely can help you build your credit history and score and possibly even save money if you use rewards cards strategically.
Yet and still, the perks of using credit cards can come at a cost. There is a wide variety of credit card fees you’ll need to look out for if you truly want to save money. Luckily, many of these fees can be avoided and I’ll explain how to do this below.
The annual fee is the most common type of credit card fee there is. Many banks and credit card companies will charge this fee once a year simply for having the card. You can think of this as a service fee, but it’s completely unnecessary.
There are several credit cards that don’t charge an annual fee. So, you can use those instead to avoid having to pay the fee. However, if you want to use certain credit cards – especially rewards cards – you may find that they all have an annual fee. This is to compensate for the rewards you’ll receive.
Earning credit card rewards is nice, but you want to determine if it’s really worth it. If you’re earning a little cash back each quarter, but your credit card’s annual fee is $99, you’re basically not earning anything because the cash back you receive is just being paid back via the annual fee.
In other cases, it’s worth it. My husband and I opened a rewards credit card that had a $50 annual fee in order to earn a few free nights at a resort for our honeymoon. We ended up getting two nights each at an all-inclusive resort plus a few other perks. So in that case, the annual fee was well worth it.
On the other hand, I had to close a card I had last year because the annual fee was $175. I realized I wasn’t earning nearly enough reward points each year to justify keeping it. When I called to cancel the card, the customer service representative recommended I switch to another card that didn’t have an annual fee. This way I was able to keep my reward points. This is what I ended up doing.
If you really like your credit card and pay your bill on time, you can also try to call and see if the annual fee can be waived for the year. I know a few people who have successfully done this. It’s not guaranteed to work all the time, but it’s worth a try.
Late Payment Fee
Late payment fees are the worst. If you miss paying your minimum credit card payment, you’ll often be charged a late payment fee. These range anywhere from $25-$35. That may not sound like a lot but it is, especially if you are late paying your bill a few times throughout the year. The money spent paying late fees is a waste when you could have spent it on something else more important.
On the bright side, it’s easy to avoid paying late fees. Simply pay your credit card bill on time each month. You will usually receive an email reminder a few days before your bill is due. If you don’t, set up your own reminder. You can use Mint.com to do this when you enter in all your bills and due dates. Or you can set a calendar notification on your phone or through your email address.
The simplest way to make sure you never pay a late fee is to set up automatic payments. That way, your bill can be paid without you having to remember to do anything manually. The only thing you need to do is make sure you have enough money in your account for the payment each month.
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Balance Transfer Fee
A balance transfer is when you transfer a debt balance you have on one credit card to another credit card. Typically this is done to receive a lower interest rate so you can pay off your debt faster. There is often a fee to do this. Balance transfer fees are usually $5 or 3% of the balance. While the APR often starts at 0% on a balance transfer, it’s only temporarily. It will go back up in a few months or a year depending on the card’s terms.
It’s difficult to avoid balance transfer fees. When you sign up for a 0% APR promotion, you are actually saving quite a bit of money. So, the credit card company wants to get something out of the deal, which is most likely why the fee exists.
Avoiding this fee is rare, but you can try to find a credit card that has a balance transfer promotion that waives the fee. Two that I know of that sometimes offer this are Barclaycard and Chase Slate. But, read the fine print because sometimes you have to do the transfer within 60 of opening a new account.
If you are able to pay off your balance quickly as a result of a balance transfer, you may be able to go with these options and avoid the fee. But remember, if the fee is only $5-$10 and saves you hundreds in interest as a result, it’s not the worst fee in the world to pay.
Foreign Transaction Fee
When you travel, you may think it’s safer to use credit cards due to the added fraud protection, but it can be costly. Many credit cards have a foreign transaction fee. This adds up to 1%-3% per transaction when you use your credit card outside of the US. This can add up easily after just a few days.
To avoid this fee when using a credit card abroad, consider opening a travel-friendly credit card that doesn’t have any foreign transaction fees. CapitalOne Quicksilver and Chase Sapphire Reserved are two options that don’t have any foreign transaction fees.
At the end of the day, you must realize that not all credit cards are created equal. Some have a ton of fees while others don’t. Regardless, many of the credit card fees are avoidable or you can receive a lower fee depending on the quality of the card. If you want to save money on credit card fees, you’ll need to maintain a good credit score. This way you can qualify for some of the best low or no-fee credit cards on the market.
It also helps to consider what you are intending to use the credit card for. That can play a large role, as well considering the fact that you may be interested in travel rewards or cash back.
Have you ever had to pay any of these credit card fees before? What steps are you taking to avoid them?