We’ve all been there: a surprise charge on your credit card statement, a fee you didn’t see coming. It’s frustrating, and it can be costly. Credit card fees, from annual charges to foreign transaction costs, are designed to catch you off guard. But they don’t have to. We’ll break down the most common credit card fees, explain how they work, and let you know how to avoid them, so you can take control of your finances.
Annual fees
Annual credit card fees are like yearly dues for membership in a premium rewards program. You’ll often see them on cards with exceptional travel benefits or high cash-back offers. These fees allow card issuers to provide those valuable perks. However, it’s important to assess if the rewards you’ll earn justify the annual cost. Do the math: if you’re paying a $100 annual fee, ensure you’re getting at least that much (plus a bit more) in rewards to make the card worthwhile.
How to avoid them
The simplest way to avoid annual fees is to just choose from one of the many cards that don’t have them. You can also call your company and request that they waive the fees, but don’t count on this method. If it doesn’t work, you may be stuck with annual fees that you can’t pay.
Balance transfer fee
A balance transfer fee is charged when you move debt from one credit card to another. This is often done to consolidate debt by leveraging a lower or 0% introductory APR for faster debt repayment. These fees are usually 3-5% of the total amount you are transferring and directly affect the total cost of consolidating.
Balance transfers can be a powerful debt management tool, but only if you have a clear repayment strategy. If you fail to eliminate the debt during the introductory period, the interest rate will likely rise, and the fee may outweigh any potential savings.
How to avoid them
If you plan to transfer your balance, these fees are generally unavoidable. However you can reduce them by selecting cards with lower percentages or look for promotional offers that waive them. Before transferring, always compare offers and calculate the total cost, including the fee, against the potential savings. Also, pay close attention to the fine print.
Cash advance fee
When you use your credit card to access cash—whether through an ATM, a bank teller, or convenience checks—you’ll be charged a cash advance fee. Unlike regular purchases, cash advances incur immediate interest at a higher rate, with no grace period.
These fees are typically calculated as a percentage of the withdrawn amount or a fixed fee, whichever is greater (e.g., 3% with a $10 minimum). For example, a $200 advance may incur a $10 fee, while a $1,000 advance would result in a $30 fee.
How to avoid them
The simplest way to avoid cash advance fees is to refrain from using your credit card for cash withdrawals. Instead, rely on your debit card at ATMs. If you require a loan, explore more cost-effective options like personal loans, which typically offer lower interest rates.
Foreign transaction fees are charged by many credit card companies when you make purchases in a currency other than your home currency. These fees, often 3% of the transaction amount, apply to both international travel and online purchases from foreign retailers. For instance, a $100 purchase will result in a $3 fee.
How to avoid them
The easiest way to avoid these fees is to get a credit card that specifically says it has no foreign transaction fees. Always check your credit card’s terms before traveling to know exactly what fees might apply.
You can also use your debit card at ATMs when you arrive in another country, but remember to check if your bank charges any fees. Another option is a prepaid travel card, where you load money in different currencies before your trip.
Late fee
If you pay your credit card bill late, you’ll be charged a late fee, usually around $25 to $39. However, the most significant consequence is the damage to your credit score.
Your payment history is a major factor in your credit score. Even a single late payment can negatively affect your score, and multiple late payments can make it challenging to get loans or good interest rates.
Credit card companies often use a system where they charge more for repeated late payments. While there are limits on how much they can charge, these fees are still something you definitely want to avoid.
How to avoid them
To avoid late payment fees, set up automatic payments for at least the minimum amount each month. Just make sure you have enough money in your bank account to cover the amount. Use calendar reminders or apps to keep track of your due dates. And always check your credit card bill every month to make sure everything is correct.
If you do get charged a late fee, you can call your credit card company and ask them to remove it. They often will do this as a one-time courtesy, especially if you usually pay on time.
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If you’re running behind schedule and you need to expedite your credit card payment so it isn’t late, you may be charged an expedited payment fee. These “rush fees” cover the added costs of immediate transactions. The amount you pay will vary depending on who you are paying and how quickly you need the payment to be processed, but in general it costs less than paying the fee for a late payment.
How to avoid them
The best way to avoid extra fees for fast payments is to plan ahead. Pay your bills early, and set up automatic payments whenever possible. Use standard payment methods, and be sure to check how long payments usually take to process. Avoid waiting until the last minute, and if you’re unsure about processing times, contact the company you’re paying. By being organized and paying on time, you can avoid the need for costly expedited payments.
Finance charge (AKA Interest charge)
A finance charge is the total extra cost you pay when you borrow money or use credit. It includes interest, which is the fee for borrowing, and sometimes other fees like service charges. For credit cards, it’s the interest you pay if you don’t pay your full balance each month. For loans, it’s the total amount of interest and fees you pay over the life of the loan. In short, it’s the cost of using borrowed money.
How to avoid them
The key to avoiding credit card finance charges is simple: pay your statement balance in full, every month, by the due date. This utilizes the grace period, preventing interest accrual. To do this, understand your billing cycle, track your spending, set payment reminders (or automatic payments), and regularly review your statement. By consistently paying in full, you use your credit card as an interest-free payment tool.
Over-the-limit fees
These fees aren’t as common anymore, but it used to be charged when you spent more on your credit card than your allowed limit. If a purchase would have made you go over your limit, the credit card company could charge you an extra fee. However, due to new rules, credit card companies now usually ask for your permission before letting you spend over your limit. Most often, the credit card company declines the purchase if it would make you exceed your limit, so over-the-limit fees are much less common today.
How to avoid them
Because over-the-limit fees are rare now, the main concern is having your card declined. To prevent this, always know your credit limit and keep track of your spending and balance. If you consistently approach your limit, and are able to pay off the balance, you can request a limit increase.
Returned check fee
A returned check fee, also known as a bounced check fee or a non-sufficient funds (NSF) fee, happens when you try to pay with a check or online payment, but there isn’t enough money in your bank account. Your bank will reject the payment, and they’ll charge you a fee. The person or company you were trying to pay might also charge you a fee. This can hurt your credit and, if it happens often, your bank might add more penalties.
How to avoid them
To avoid returned check fees, always know your account balance before you pay, and set up low balance alerts in your online banking.
Application fee
A credit card application fee is a charge some credit card companies might ask for when you apply for a card. It’s a fee just for submitting your application, whether you get approved or not. These fees are not very common, especially with regular credit cards. You’re more likely to see them with credit cards for people with poor credit, or some business cards. The fee helps the company pay for checking your information.
How to avoid them
Avoid credit card application fees by choosing cards from major issuers that don’t charge them. Research terms beforehand, stick to mainstream cards, and avoid subprime options. Always read the fine print, and confirm any doubts with the issuer.
Credit limit increase fee
A credit limit increase fee is a charge that some credit card companies could ask for if they raise your spending limit. However, this is very rare. Most major credit card companies offer credit limit increases for free. It’s more likely you might see this fee with less common or subprime credit cards, but even then, it’s unusual. Credit card companies generally want you to spend more, so they don’t typically charge for increasing your limit.
How to avoid them
Credit limit increase fees are nearly nonexistent, so avoidance is primarily about choosing reputable card issuers. Stick to mainstream companies, review fee schedules (though unlikely to find this fee), maintain good credit, and request increases through official channels. Avoid subprime lenders, and always verify any charges before accepting a limit increase.
Card replacement fee
A card replacement fee is what some banks or credit card companies charge when they give you a new card to replace your old one. This might happen if your card is lost, stolen, damaged, or if you need a new one for reasons like a name change. The amount of the fee can vary from bank to bank, and sometimes they won’t charge you at all, especially if your card was stolen or there was a security issue. If you need your new card delivered very quickly, they might charge an extra fee for faster shipping. While both debit and credit card companies can charge these fees, many are now reducing or even getting rid of them for regular replacements.
How to avoid them
While card replacement fees are increasingly uncommon, safeguard your card to prevent damage or loss. Report any loss or theft immediately, familiarize yourself with your issuer’s policies, and consider using digital wallets to minimize physical card usage.
Credit card processing fees
Stores pay credit card processing fees to accept card payments. These fees cover the costs of the payment system, including charges to banks, card networks (like Visa), and payment processors. The fee amount varies based on card type, payment method, and business factors. When you pay with a card, the store’s account is debited, minus these fees. Consumers don’t pay this fee, however these costs are often factored into the overall price of goods and services and, in some cases, surcharges or convenience fees may be applied.
How to avoid them
As these fees are paid by merchants, you can’t directly avoid credit card processing fees. However, if a store adds a surcharge or convenience fee for credit card use, consider paying with cash or debit to avoid those extra charges.
Final thoughts
While fees can be frustrating, the good news is that many are avoidable. Set up automatic payments, monitor your spending, and choose credit cards that suit your spending habits. If you’re unsure about anything, contact your credit card company for clarification.
Credit cards are valuable financial tools when used responsibly. By staying informed and proactive, you can avoid unexpected fees and maintain better control over your finances.
If you used a credit card with a high APR and now you’re deep in debt, we can help. Reach out to one of our certified credit counselors today.
