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These offers are no longer available on our site: Capital One® QuicksilverOne® Cash Rewards Credit Card, Citi Simplicity® Card
While credit cards can be useful financial tools, you may be surprised by the wide variety of fees and expenses that can accompany a small piece of plastic.
Of course, it’s not always a bad idea to pay certain credit card fees. Sometimes the benefits or rewards of having a card are worth the cost, as many of those with premium rewards cards like the Platinum Card® from American Express ($550 annual fee) would attest.
A steep annual fee is one thing, but the last thing you want is to get blindsided by unexpected charges. The good news is that you can avoid the most annoying credit card fees with a little planning. And if paying an annual fee doesn’t appeal to you, well, you can avoid that too.
In any case, it’s best to learn the basics about credit card fees and how to avoid them so you can make a calculated decision when you apply for your next credit card. On that note, let’s go through some of the most common credit card fees.
- Annual fee
- Late payment fee
- Returned payment fee
- Foreign transaction fee
- Balance transfer fee
- Cash advance fee
- Over-limit fee
- Interest charges
As the name suggests, you may have to pay a yearly fee to keep your credit card account open. Annual fees can vary greatly depending on the card. Capital One® QuicksilverOne® Cash Rewards Credit Card, for example, carries an annual fee of $39, while the aforementioned Platinum Card® from American Express will cost you $550 annually.
A card’s annual fee is generally related to its rewards-earning potential and other perks, but some cards may offer better value than others.
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How to avoid annual fees
There are many credit cards — yes, even rewards credit cards — that don’t have an annual fee. If you don’t want to worry about paying an annual fee and your credit is good enough for approval, you could limit your search to these credit cards.
Some cards waive the annual fee for the first year. If you use one of these cards, you may want to consider downgrading if your spending and travel habits have changed and paying the annual fee no longer makes sense.
Heads up: There’s no guarantee that your credit card issuer will allow you to downgrade your credit card, and closing a credit card account may affect your credit health. If this is the path you decide to go down, do your research first and understand the potential drawbacks.
If you already have a credit card with an annual fee and simply don’t want to pay the fee anymore, it’s worth asking your credit card issuer if there are any promotional offers available on your account. The issuer might waive the fee, or offset it with a statement credit, if you agree to keep your account open. Again, this isn’t guaranteed — but it doesn’t hurt to ask!
Passed in 2009, the Credit Card Accountability Responsibility and Disclosure (CARD) Act set certain limits on penalty fees, such as late payment fees. For example, card issuers can’t charge a late fee that exceeds your minimum payment. And, as of 2020, they can only charge up to $29 for your first late payment and up to $40 for additional late payments during the following six months.
Still, paying late could lead to other consequences, such as a higher interest rate on future purchases or a credit-damaging derogatory mark on your credit reports. So, it’s always a good idea to pay on time if you can.
How to avoid late payment fees
First things first: Set up automatic payments for at least the minimum payment amount to ensure you won’t get charged a late payment fee.
Some cards, such as the Citi Simplicity® Card, don’t have a late payment fee. Others, like the Discover it® Cash Back card, waive your first late payment fee. Just keep in mind that the fee may be the least of your worries if you miss a payment. With Citi Simplicity® Card, for example, your interest charges could stack up thanks to a regular variable purchase APR of 14.74% - 24.74%.
If you do wind up paying late by mistake, call the issuer and ask if it will refund the fee. Issuers aren’t obligated to do so, but some may help you out if they see it was an accident.
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Your card issuer could charge you a returned payment fee if your payment isn’t honored. This may happen if your check bounces, for example.
A returned payment could also result in a late payment, but you can’t be charged a late payment fee and a returned payment fee for the same incident. Keep in mind that cards that don’t have a late payment fee might have a returned payment fee.
Similar rules apply to late payment and returned payment fees. As of 2020, a first violation could cost you up to $29 and additional returned payments could cost you up to $40, but the fee won’t be greater than your minimum payment amount.
Heads up: If you try to pay off your credit card account from a bank account with insufficient funds, your bank may charge additional fees associated with your bank account. Many bank accounts come with fees for using your account when you don’t have enough money in it, or if it’s already overdrawn.
How to avoid returned payment fees
Keep a close eye on your account balances and make sure you’ll have enough money in your bank account when the card issuer deposits your payment.
Setting up a budget and regularly balancing your checkbook could be a good place to start — especially if you’ve had trouble with returned payment fees in the past.
Some credit cards have a foreign transaction fee, which is generally up to 3% of the U.S. dollar purchase amount.
The fee may apply to all non-U.S. dollar purchases, even if you make them while in the U.S. It may also apply to purchases made outside the U.S., even if the purchase is in U.S. dollars.
How to avoid foreign transaction fees
The simplest way to avoid this fee may be to get a credit card that doesn’t charge foreign transaction fees. Fortunately, there are many cards with no foreign transaction fees to choose from.
Generally speaking, travel rewards cards are your best bet to avoid foreign transaction fees. (They’re designed for travelers, after all.) We recommend checking out the Bank of America® Travel Rewards credit card, which charges a $0 annual fee — and its foreign transaction fees? None.
You can move balances from one credit card to another using a balance transfer. When you do, the card you’re moving the balance to may charge you a balance transfer fee. The fee is typically 3% to 5% of the amount you transfer, with a minimum fee of $5 to $10 per transfer.
In some cases, it may be worth paying the fee and moving high-interest credit card debt to a card that offers a 0% introductory APR on a balance transfer.
Keep in mind that balance transfers may not have a grace period. This means the transferred balance and your purchases will start to accrue interest immediately, unless they fall within the period of a 0% intro APR offer.
How to avoid balance transfer fees
If you’re going to make a balance transfer, the only way to avoid this fee is to look for a card that doesn’t charge it. But there aren’t many available.
You can use a cash advance to withdraw cash from a bank or ATM with your credit card or to deposit money into a bank account with a convenience check.
This may be helpful if you need to make a payment to a person or business that doesn’t accept credit cards, but a cash advance could be costly. On top of repaying the cash you borrowed, you’ll likely pay a high APR on the balance.
How to avoid cash advance fees
Look for alternatives to using cash advances, such as paying with a credit card or withdrawing money from your bank account with a debit card.
Cash advance fees may apply to “cash equivalent” transactions as well, including money orders, bets, bail bonds and casino gaming chips. Read your credit card account’s fine print to avoid accidentally paying these cash advance fees.
Ready for some good news? Card issuers can only charge you a fee for going over your card’s limit if you opt in to allow the card issuer to accept charges that put you over your credit limit. After you opt in, the issuer must send you a confirmation that you’ve agreed to allow over-limit charges.
Basically, if you haven’t opted in and received this confirmation, you shouldn’t have to worry about over-limit fees. Your card issuer may decline the transaction or let you go over, but it can’t charge you a fee.
Seems clear enough, but what if you do opt in?
If you’ve agreed to permit over-limit charges, your issuer can generally charge you a fee of up to $25 the first time you exceed your credit limit and up to $35 if you go over your limit a second time within six months. In either case, the fee can’t be larger than the amount by which you exceeded your limit.
How to avoid over-limit fees
The easiest way to avoid the over-limit fee is to not opt in for over-limit transactions. If you already opted in, don’t panic: You can opt out at any time by notifying your card issuer.
Feeling constrained by your credit limit? You could ask the issuer to increase the limit on your card. Just make sure you know how much to request and how to make your case.
Interest isn’t technically a penalty or fee, but it is a potential expense that comes with using a credit card. For credit cards, interest is typically expressed as a yearly rate known as the annual percentage rate, or APR.
Your APR can vary depending on your credit health when you apply for a card. It may also change over time; many cards have a variable APR that will go up or down based on the prime rate.
It’s important to note that certain credit cards may have different APRs for purchases, balance transfers and cash advances.
How to avoid interest charges
Of course, the best way to avoid interest charges is to pay your balance in full each month.
And if you want to save interest on purchases that may take several weeks to pay off, taking advantage of your credit card company’s grace period can come in handy.
Generally, credit card companies offer a grace period for new purchases. This period is the gap between the end of your card’s billing cycle and the date your payment is due.
With most credit cards, if you pay off your statement balance in full and have no outstanding cash advances, you won’t be charged interest on new purchases during the grace period. If your card has a grace period, the issuer must ensure bills are mailed or delivered a minimum of 21 days before the due date. Knowing how your credit card’s grace period works can help you manage your balance and avoid unnecessary interest.
Understanding credit cards fees, when they might apply and how to avoid them is the first step to becoming a savvy credit card user.
This knowledge can help you decide when it’s best to make a purchase with debit, credit or cash. It may also help you determine which credit cards to apply for — and which to avoid at all costs.