Credit cards can be great financial instruments, as they provide various rewards, help you earn purchase protection and grant a simple way to build credit. But convenience comes at a price — if you’re not careful. In the fine print of your cardholder agreement can be some fees that might chip away at your rewards quickly — or even worse, leave you in the hole for big money.
The good news? For the most part, almost all of these so-called nonsense credit card fees can be avoided through knowledge and disciplined habits. This guide will help you navigate the mostcommon fees, why they are charged and best of all actionable ways to not have to pay them again.
Annual Fee
What it means: An annual fee that you pay just for having the card in your wallet.
Why it’s charged: Premium rewards cards come with annual fees to help cover their generous sign-up bonuses, top reward rates and valuable perks that can include airport lounge access, travel credits and concierge services.
How to Avoid It:
Opt For No-Annual-Fee Cards: The easiest one. Many standout cash-back and travel cards carry no annual fee, so they can be a great everyday play.
Do the Math: If you’re considering a card with an annual fee, add up what the cost will be for the next five years. If the rewards and perks that you do redeem are worth more than the fee, it could make sense to keep the card. If, for instance, a card has a $95 annual fee and gives you back a $100 annual travel credit (and you use it), the card essentially pays for itself.
Request a Product Change: If you have a card with an annual fee that you no longer think is worth it, consider calling your issuer to ask if it can downgrade you to a version of the card with no fee. This way you can keep your credit history and avoid the fee.
Interest Charges (Finance Charges)
What it is: The price for borrowing money on your card, expressed as an Annual Percentage Rate (APR). This is by far the most costly fee if you hold a balance.
Why it’s charged: This is how issuers make money when you fail to pay your bill in full. Interest in daily compounded, so you’re paying interest on your interest, and it’s a vicious cycle: Debt can snowball fast.
How to Avoid It:
Pay Your Statement Balance in Full Every Month: This is the golden rule of owning a credit card. If you pay the entire statement balance by the due date, which is called using your card’s grace period, you owe $0 in interest, no matter what your APR is.
Late Payment Fee
What it is: A fee you get hit with if you don’t even manage to make your minimum payment by the due date.
Why it’s bad: This is a type of penalty for violating the terms of the cardholder agreement. Apart from the fee, a late payment can prompt a Penalty APR and do great harm to your credit score.
How to Avoid It:
Establish Autopay: The simplest way to ensure your bills are paid. Have that amount set up on autopay for at least the minimum payment as a safety net. Ideally, set it up for the entire statement balance to avoid paying interest as well.
Set Payment Reminders: Opt for text or email reminders from your issuer to remind you when your payment is due.
Sync Your Due Date: Switch your payment due date to the day you get paid or another memorable day of the month.
Foreign Transaction Fee
What it is: A charge (often 3 percent) that you pay on every purchase in another currency or made with a merchant based outside your home country.
Why it’s charged: Issuers charge this to recoup the cost of currency conversion.
How to Avoid It:
Get a No-Foreign-Transaction-Fee Card Many travel rewards cards and even some no-annual-fee cards specifically do away with these fees. If you take international trips, or you shop on international sites, this is an essential feature.
Cash Advance Fee
What it is: A fee you’re charged for using your credit card to get cash from an ATM or bank teller. It’s typically the greater of a flat fee (e.g., $10) or a percentage of the advance (e.g., 5%).
Why there’s a charge: Cash advances are risky transactions.
How to Avoid It:
Never Use a Credit Card for Cash: “This is one of the more expensive ways to get cash,” Hayes said. Not only is there an instant fee, but there’s also no grace period: you start paying interest the day the transaction posts (and frequently at a much higher Penalty APR). Just use your debit card.
Balance Transfer Fee
What it is:Afee for transferring a balance from one credit card to another, generally 3 to 5% of the transferred amount.
Why it’s charged: It’s what the new issuer charges for assuming your debt, particularly if they provide a promotional 0% APR period.
How to Avoid It:
Search for Promotions: While rare, a small number of cards promote $0 balance transfer fees at certain times.Card.
Do the Math: Sometimes, the fee is reasonable. Even if you’re transferring a $5,000 balance with a 20% APR to a card that offers a zero percent intro APR and has a 3% fee ($150), you still might save quite bit on interest so long as you manage to pay off the balance by time it’s paying interest again. The trick is to have a good payback plan.
Over-the-Credit-Limit Fee
What it is: The fee for making a purchase that puts you over your credit limit.
Why there’s a charge: You’ve surpassed your credit line agreement.
How to Avoid It:
Track Your Spending: Watch your balances and available credit with an app or through the website of your issuer.
Over-Limit Coverage Opt-Out: Law prohibits issuers from charging this fee unless you have “opted-in” to allow transactions that exceed your limit to be approved. If you haven’t registered, the transaction will be declined outright — saving you the fee.
Returned Payment Fee
What it is: A fee that’s applied to your account when a credit card payment “bounces” because there wasn’t enough money in the bank account you’ve connected to your card.
Why it’s levied: The issuer had an expense because of the failed transaction.
How to Avoid It:
Confirm Adequate Funds: Verify that your linked checking account has sufficient funds to cover a payment before you make it.
Keep a Buffer: Keep a small cushion in your checking account to avoid inadvertently overdrafting it.
Become a Fee-Free Cardholder
The way to steer clear of credit card fees lies in awareness and active management. If you know what these common fees are and how they work, you’ll be better able to manage your card strategically so that it works in your favor — instead of against you.
Your Action Plan:
Read Your Cardholder Agreement Determine the potential fees for your various cards.
Pay In full and On Time: This is the one habit that saves you the two most expensive fees — interest, and fees for paying late.
Pick the Right Card for How You Spend: If it fits your spending, go for cards with no annual or foreign transaction fees.
Automate and Monitor: Sign up for autopay, and frequently review your statements for any incorrect charges.
Your credit card is supposed to be working for you, not against you. By managing it yourself, you can make sure that the only thing you “pay” for is your actual purchases — and start earning rewards and building your credit for no cost.