Common Credit Card Fees and How to Avoid Them

When you read the fine print for credit cards, you’ll notice a schedule of fees. And while many cardholders ignore these figures, it’s important that you take a look so you’ll know what you’re getting into before swiping away. Plus, there may be ways to avoid these fees if you take a proactive approach to managing the card. 

Read on to learn more.  

1. Annual Fee

Some credit card issuers assess an annual fee to cardholders to offset the costs associated with maintaining the card. It’s automatically deducted from your available credit limit and you’ll have to pay interest on the fee until you take care of the balance. And oftentimes, the more perks the card offers, the higher the fee. 

But you may be able to get out of the fee the first year as some credit card issuers waive the fee during this time period to entice you to apply for the card. If that’s not an option, be sure to conduct a cost-benefit analysis to confirm the benefits you’ll derive from the card will ultimately outweigh the amount you’re spending on the annual fee. 

To avoid the annual fee…

You have three options:

  • Request that the fee be waived. Call up customer care and ask about getting the fee wiped on the grounds of your stellar track record as a long-time customer. 
  • Take advantage of the fee-free window and close the card. If the credit card issuer is extending an introductory offer that you are anxious to take advantage of, you have the option to snag the card, capitalize on the benefits, and move on. If you plan to take this approach, only charge what you can afford to pay off each month and do so before you close the card. Also, keep in mind that closing the card could have implications for your credit score if your utilization ratio is drastically impacted. 
  • Find a card with no annual fee. This is the smartest approach if you’re a credit newbie or want to steer clear of fees altogether. The card may not have much to offer, but if it’s responsibly managed, you’ll stay out of trouble and avoid racking up unnecessary credit card debt. 

2. Annual Percentage Rate (APR)

As you probably already know, it’s not free to use your credit card, thanks to something called APR. It’s interest that the issuer charges on your purchases if you don’t pay the balance in full each month, and typically ranges from 12 to 24 percent or higher, depending on the card issuer and possibly your credit rating. 

Beyond purchase APR, there are also three other types of APRs you should know about, including:

  • Balance transfer APR- applies when you transfer a balance from another card, and usually includes a fee
  • Cash advance APR- assessed to cardholders for cash advances from their credit card, and is also accompanied by a fee. 
  • Penalty APR- the higher interest rate that you may be assessed for six subsequent months following a late payment

To avoid the purchase, balance transfers, cash advances, and penalty APRs…

You have two options: 

  • Pay your balance in full each month before the grace period ends. If you do so every month, you’ll never pay a dime in interest. 
  • Take advantage of the promotional APR period on purchases and balance transfers. But you may need to open a new credit card to find the best deals as most credit card issuers only extend these offers for the first 12, 15, or 18 months of the card’s life. 
  • Refrain from taking cash advances from your credit card as it’s one of the more costly methods to obtain fast cash. 
  • Make timely payments on your credit card each month. And if you are late, call and request that the late payment be waived if it’s not a recurring issue.

3. Cash Advance Fee

Cash advances come at a hefty cost in the form of APR and a fee which is usually around the higher of 3 percent of the amount of the transaction or $10. And credit card companies typically implement limits so you can’t just go and withdraw the entire amount of available credit from the ATM. 

So if your available credit is $1,500 and cash advance limit is $500 and you decide to draw the full amount, you’ll pay $15 in fees to the credit card issuer. And that doesn’t include the amount the ATM machine charges you. 

To avoid cash advance fees…

  • Find alternative ways to borrow money. Consider a small personal loan from your bank as the interest rates will more than likely beat out what you’re paying with your credit card. Plus, personal loans are installment debt, which means you’ll pay less interest since the account is only open for a set period of time. You can also try friends and relatives if you don’t have any luck with getting a loan, but be sure to get the agreement in writing to avoid any confusion later on down the line. 
  • Keep your debit card or cash on you at all times. Maybe not having enough cash on hand isn’t the issue. It may seem easier and safer to just whip out your credit card and make a withdrawal when you’re out and about. But the next time you’re inclined to do so, remember the hefty cost that comes with ATM withdrawals from credit cards. 

4. Card Replacement Fee 

Credit card companies have a way of nickel and diming customers to get as much money as they can in their already fat pockets. And some go to extreme measures by charging for just about everything, including a new card if you happen to misplace yours. 

To avoid card replacement fees…

  • Hang on tight to yours, but if it is lost, stolen, or destroyed, call customer service and ask for a new card on the house. If they refuse, threaten to close your card and request to speak with a representative from the customer retention department. That should be enough to get their attention because chances are they won’t be willing to risk losing a valuable customer over a few bucks. 

5. Credit Limit Increase Fee

You’d think credit card companies would be willing to offer you an increase free of charge, but that’s not always the case. Even if you didn’t request it and they determined you would be a good candidate for more purchasing power, they may charge you a flat-fee to take advantage. 

To avoid credit limit increase fees…

  • Deny the opportunity, particularly if you don’t need additional credit. Unless you can earn more rewards by using the card and can comfortably afford to pay off what you spend each month, having a higher credit limit may not be to your advantage. Yes, your credit utilization may increase thus improving your FICO score, but you run the risk of digging a deeper debt hole.
  • Ask that the fee be waived. Everything’s negotiable in credit card land, which means there are actions that can be taken behind the scenes to make that pesky credit limit increase fee disappear forever. 

6. Foreign Transaction Fee

When you travel abroad and swipe your credit card, you may notice an additional amount tacked on to each transaction. This is referred to as a foreign transaction fee and is usually around 3 percent per purchase. 

While this may not sound like a lot, these fees can quickly add up if you’re overseas often or spend quite a bit while you’re there. To illustrate, if you spend 15 days in Europe and spend what equates to $3,000 USD, you’ll incur $90 in fees, alone. And that’s not including any interest you’ll have to pay until you pay the balance in full. 

Quick note: you don’t have to leave home to be hit with a foreign transaction fee. If you shop online, some merchants that are based overseas will charge you at the time of purchase.

To avoid foreign transaction fees…

  • Consider applying for a credit card that doesn’t include a foreign transaction fee. Most credit cards that are designed for travel fit the bill and aren’t hard to find. 
  • Shop with merchants that don’t charge these fees. Shoot them an email to get a response in writing so you’ll have proof just in case a fee shows up on your credit card statement. 

7. Late Payment Fee

When you miss the due date on your credit card, you’ll incur a late fee between $29 and $39 for each occurrence. Some companies will give you a small grace period to get your payment in, but others will charge you if payment is remitted by their daily cut-off time for payment processing. So if the fine print states all payments must be in by 5:00 pm EST and you schedule your payment at 5:03 pm EST, a late fee will be tacked on to your account. 

To avoid late payment fees…

  • Request that the fee is waived as a one-time courtesy. If you’re habitually late on your monthly credit card payment, don’t expect this tactic to work. But if this is an isolated incident, the credit card issuer may be willing to work with you.
  • Put the account on auto-pay to avoid missing monthly payments. Don’t quite like the idea of autopay? Consider scheduling your payment at the beginning of the month, even if the due date isn’t until mid or late month, so you won’t forget about it. 

8. Over-the-Limit Fee

Once you’ve reached your credit limit, the card issuer will kindly cut off spending and decline all subsequent transactions. But here’s what you may not know: they could also charge an over-the-limit fee if they’re able to do so under their state law.  

To avoid over-the-limit fees…

  • Closely monitor your credit card balance. When you’re getting close to the limit, stop spending right away. 
  • Refrain from opting-in to the ability to exceed your credit card limit. 

9. Payment Processing Fee

While you’ll rarely find payment processing fees nowadays, some credit card issuers do charge for expedited payments. Why so? Well, if their payment processing time is 3 to 5 business days before the funds are reflected in your available balance and you need them to be applied before then, an expedited payment would be more ideal. 

To avoid payment processing fees…

  • Plan ahead so you won’t be forced to pay an extra fee for a payment to process faster. Consider paying a week or so in advance so the funds will be available when you need them. 

10. Returned Payment Fee 

In the event you make a payment on your credit card and do not have the funds in your account to cover the cost, you could get hit on two ends. Assuming the bank kicks the payment back instead of taking care of it through overdraft protection, they’ll charge you an NSF fee. And you can also expect a returned payment fee from the credit card company. 

To avoid returned payment fees…

  • Confirm you have a sufficient amount of cash in your bank account before scheduling a payment. You can also use your bank’s online bill pay function so the funds will be withdrawn right away.

The Bottom Line 

There are a plethora of credit card fees you should be aware of when swiping away. But the good news is by understanding how they work, you can take the necessary steps to avoid them altogether so you won’t have to spend more money than necessary to take advantage of all the card has to offer.