Credit Card Fees and How to Avoid Them

/ BY / Credit 101

The credit card industry is the most lucrative business in the country, earning a whopping average of $30 billion in profits each year. One of the biggest ways credit card companies make money is through the fees they charge their cardholders. While it may seem that credit card fees are unavoidable, you can save a great deal of money each year by educating yourself on credit card fees and then taking the proper steps to avoid them.

Types of fees

The list of fees a credit card company charges is long, but these are some of the most common:

  • Annual fee. This is the amount of money charged each year simply to have the card. It is usually charged once a year in a lump sum, but sometimes is added in a monthly fee to your card.
  • Application fee. Many credit card companies will charge you just to submit a credit card application.
  • Balance transfer fee. Transferring the balance of one credit card to another is an attractive option if you have a high interest card. Keep in mind, however, that you will pay a fee to do so.
  • Cash advance fee. Many credit card companies promote their credit cards for cash advances, meaning you can use your card to get cash. You will almost always be charged a fee for this.
  • Late payment fee. Late payment fees can be tricky because the payment must be made by the time stated on your credit card statement. Many people think they can get away with paying their bill by midnight, but in reality, the cutoff is usually 5 PM on the due date and in the time zone where the credit card company is located. Late payment fees are particularly harmful because most companies will increase your interest rate after just one late payment.
  • Overlimit fees. If you go even one penny over your credit limit, you'll be charged a fee. That fee carries over each month until you pay below your balance.

Credit card fees can be particularly damaging because they tend to piggyback off each other, causing you to incur even more fees. For example, if you're late on your payment, the credit card company may charge you a $35 fee. That fee may push your balance over the limit, causing you to incur another $35 fee.

Avoiding credit card fees

Luckily, many of these fees can be avoided or at least minimized. A few ways to keep from wasting money on fees include:

  • Know your rights. New Federal Reserve Credit Card regulations limit the amount of fees a credit card company can charge you and when. Knowing your rights can help you spot unlawful fees.
  • Read the fine print. Don't agree to a credit card unless you know exactly what fees you will be charged and when.
  • Set up automatic payments. It's easy to forget to pay a bill every now and then, but this mistake can cost you. Setting up automatic bill pay with your bank (this is usually free) will help you avoid late fees.
  • Don't authorize your company to go over the limit. New changes to credit card regulations require that you must be allowed to authorize your credit card company to go over your limit if you attempt to make a purchase that exceeds the limit. Don't authorize your company to do this. While your purchase may be rejected, it will save you money in over limit fees.

Credit card fees are part of having a credit card, but they don't have to break the bank. These tips will help you avoid a number of fees.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.