4 Credit Card Fees You Should NEVER Pay
One of the ways that credit card companies make money is by collecting fees from their cardholders. Although these fees are sometimes a big deal for the average person, the reality is that they represent a drop in the bucket in terms of a credit card company’s overall income. The fact of the matter is that your issuer will probably be just fine if you hardly pay any of your fees, a fact that they are all too aware of.
For this reason, it’s actually surprisingly easy to avoid credit card fees. However, the ease of the task doesn’t stop people from committing one of the biggest credit card mistakes: paying unnecessary fees. Find out which costly credit card fees people pay way too often and learn the tricks about how to avoid them yourself.
Table of Contents
1. Annual Credit Card Fees
Lots of credit card companies will try to charge you an annual fee for the spending power that comes with using their card. Ostensibly, this fee is to cover the various costs associated with maintaining your card, including administrative costs, the cost of infrastructure, and everything else involved with running a business. In some cases, it might be worth it to pay in order to get a premium card or lucrative rewards that more than make up for the annual fee.
However, credit card companies benefit a lot more from having you as a customer than they do from collecting your annual fee. If you can guarantee that you’ll reach a certain amount of spending every year on your card, you may be able to negotiate with your credit card company to get them to lower or even drop the annual fee. If you aren’t taking full advantage of your card’s rewards program or earning enough points to make up for it, then paying an annual fee is costing you money and you should change cards for something without the fee.
2. Late Payment Fees
One of the scariest fees for any credit card owner is the late fee. Late fees can add on to already challenging credit card payments and can cause an already difficult situation to spiral out of control.
Late fees exist so that credit card companies can incentivize on-time payments and make up for lost ground with customers who don’t pay. However, the bottom line for credit card companies always comes first: they want to get paid and it is sometimes possible to settle your credit card debt, which can include unpaid late fees.
Of course, the best way to avoid late fees is to make your credit card payments on time every month. Create a budget and stick to it so that you’re never caught off guard by your credit card statement. Late payment fees are often negotiable and always avoidable, so don’t fall into the trap and surrender extra cash to your card company.
3. Cash Advance Fee
Whenever you make a cash advance transaction, you are likely to be hit with a cash advance fee. A cash advance is any transaction where you use your credit card to take out a small loan in cash. For example, using your credit card at an ATM for some quick cash. Technically, all credit card charges are like microloans, but because they go straight from the card to the merchant, it doesn’t usually cost you anything. Getting cash means involving a third-party like a bank or an ATM, which means a completely different fee schedule than the usual merchant.
While cash advances are convenient, they are very rarely worth it. The best way to avoid associated fees is just to stay away from cash advances. Fortunately, credit cards are now accepted almost everywhere, so it is very rare that you will be unable to pay for an item with your credit card. If you can plan ahead, you are much better off using your debit card at your bank, or an ATM that belongs to your bank, to get cash from your own account. Cash advances are only good in a pinch, and even then come at a seriously inflated premium you should never make a habit of paying.
4. Finance Fee
If you’ve ever tried meeting only your minimum monthly credit card payments, then you’re probably familiar with finance fees. A finance fee represents the interested that is tacked on to your account balance after the grace period, also known as the APR.
Carrying a balance on your credit card can cause you to rack up finance fees quickly, as interest is applied to your account month over month. If your balance gets too high and you are not able to meet your monthly credit card payments, your credit score can suffer for it. Carrying a balance can also inflate your credit utilization, another important number for your overall credit score. Using too much credit, or carrying a balance too long, can hurt your score and make you look riskier to other lenders down the road. In other words, finance fees can cost you money now, and in the future.
The best way to avoid finance fees is to pay off the balance of your card month over month. Instead of settling for meeting the minimum payment necessary, try to pay your entire balance each billing cycle. This will end up costing you a lot less in the long run as you avoid finance fees.
Credit card fees are one of the nasty parts of owning a credit card. There is really no benefit to fees; they just cost you money, and can sour your relationship along with your credit score. Manage your card wisely, talk with your issuer about your fees, and stay on top of your monthly payments and you may find that you can enjoy all of the benefits of a credit card without getting bogged down in fees.
Looking for more tips on how to use your credit card? Visit our credit card resource center for more guides.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.
This post was updated February 28, 2019. It was originally published September 15, 2017.