How To Avoid Seven Common Credit Card Fees

Posted on 15 July 2009

The pleasure you get from buying anything you want, even if you don’t have the money is quite satisfying and appealing. Getting something today and paying for it tomorrow is too great for too many people. But using a credit card can have added consequences with unexpected costs and even more debt.

credit card fees

As credit cards are so common, plastic payments have been made very easy. For instance, in 2006, Americans charged more than $51 billion to credit cards to pay for fast food purchases alone. There is a great chance that they will not even remember the burger they had, when the bill comes in three weeks, and they will pay significantly more than the burger’s cost in interest if they do not pay off their credit card bill in full and on time each month. Plus, studies have found that people spend more when paying with a credit card than with cash as they don’t have a specific limit to the amount they can spend (except the maximum limit on card) which is the case with cash money.

Whether you use credit cards for daily expenses, in emergencies or hardly ever, here is an introduction to some of the most common types of credit card fees and some tips on how to avoid them:

1. Annual Fees

This fees is charged to borrowers for the privilege of having a card. Most often, annual fees appear with secured cards and cards with perks, such as rewards or rebates. Although it cannot be avoided completely, the best is to ask the card issuer if the fee can be waived, or if you can select an alternative card with no fee. You can also check around for no-fee cards but beware of the fact that some cards have no fee for the first year, but thereafter, a fee applies. Therefore, read the terms and conditions carefully before opting for a card of you choice.

2. Application Fees

Some secured credit cards charge borrowers an application fee. The best way to avoid it is to check before applying, and if a fee exists, ask if it can be waived. If not, look for a card that does not charge a fee.

3. Balance-transfer and cash-advance fees

This fee is charged when borrowers transfer a balance from one card to another, or withdraw cash against a credit line. Typically, these is one-time fees of 1 percent to 3 percent of the amount transferred or withdrawn. In addition, interest charges apply to the balance. Sometimes a special interest rate applies, which might be higher or lower than the regular interest rate. In order to avoid it, you should look for special offers, ask if fees can be waived, or plan carefully to avoid transferring balances or taking cash advances. If you are transferring a balance in order to reduce interest payments, calculate your expected interest savings to determine whether paying the fee is worthwhile.

4. Finance charge

This is a charge for carrying an outstanding balance on a credit card, based on a set annual interest rate. Many cards charge interest on the average daily balance over a two-month period, meaning that interest accrues even if the borrower pays the balance in full one month. The finance charge will vary depending on the interest rate, account balance and method of calculating the finance charge. You can avoid it by paying the balance in full each month.

5. Insufficient funds or returned check fee

This is a fee charged by the issuer when a check or electronic payment is returned by your bank for insufficient funds. The fee from your credit card issuer is typically $30 to $40, and most banks charge an additional NSF fee of $25 to $30 per invalid check or transfer. Therefore, be certain funds are available to pay bills.

6. Late fees

These are the most common credit card fees, and the cure is simple: Pay on time. Each time you miss the deadline, you will face a fee, typically around $30. In addition, many credit card issuers will increase the interest rate to the default rate which is typically the highest interest rate they can charge after a late payment. You can avoid it by allowing at least seven days for payments by mail, or schedule payments online or by phone (which might involve another fee).

7. Over-limit fees

Over-limit fees are penalties for charging more than the limit. Even if you never exceed your limit, be careful beforehand. Recently, some credit-card issuers have lowered credit card limits, sometimes even lowering account limits below an existing balance. Thus, some borrowers who thought they were below their limits suddenly have found themselves exceeding limits. Therefore, keep balances significantly below the credit limit, and keep a close eye on the “credit available” amount. With new credit-card regulations signed into law this spring, borrowers must opt in for over-limit access. Watch your mail for new cardholder agreements that include this provision.

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noor – who has written 36 posts on Loan Mortgage Credit!.

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