Common Credit Card Fees (and How to Avoid Them)
Cardholders pay these fees everyday but you don’t have to.
Credit cards can be valuable financial tools when used the right way. A credit card can work as an emergency loan in a pinch—like when your car breaks down and you don’t have the cash to fix it but need your car to get to work. Credit cards marketed to frequent travelers can make travel more affordable and more comfortable. Many cards include valuable consumer protections and perks that make our transactions safer and save us money.
Of course, none of this is free. Cardholders who carry balances month to month on their accounts will be charged interest for the privilege of carrying plastic in their wallets. In addition to finance charges, credit card issuers have added a bevy of fees you may or may not have to pay, depending on how you manage and use your card.
Finance charges aren’t tacked onto your account in a fixed amount like some other fees on this list. Instead, these charges vary based on your credit card’s interest rate and the amount of the balance you carry from one month to the next after your grace period ends.
Note: A grace period is an amount of time you have, after your statement date, to pay your balance in full before interest is charged, usually between 21 and 25 days.
Also note that your finance charges can vary depending on how your bank calculates interest charges.
Considering the average credit card interest rate is well over 17% right now, finance charges can become exorbitant over time when you have debt. However, there’s one surefire way to avoid them altogether, and that’s by paying your balance in full every month.
Next up is the annual fee—a fee some card issuers charge simply for the privilege of carrying a specific credit card. Paying an annual fee to have a credit card may seem strange since there are many cards that don’t charge this fee, but credit cards with the highest fees tend to offer the most benefits and perks,
For example, you may pay anywhere from $95 to $550 per year for one of the top travel credit cards, but they often come with benefits like airport lounge access, a Global Entry/TSA Precheck credit, or an annual travel credit in return—and those are just a few of the perks available.
Annual fees are easy to avoid since there are many credit cards—and even rewards credit cards—that don’t charge this fee.
Foreign Transaction Fees
Foreign transaction fees are charged by some credit cards when you use your card to make a purchase outside the United States. You may never encounter this fee at all if you never leave your home country, but foreign transaction fees—which are usually between 2% and 3% of the purchase amount—can become costly if you travel often.
The solution to foreign transaction fees? Use a credit card that doesn’t charge this fee and you’ll never have to pay it.
Cash Advance Fees
Some credit cards allow customers to take a “cash advance,” or an amount of money in cash that is added to their credit card balance. This is one area where just because you can do something doesn’t mean you should. Cash advances usually come with a separate, higher interest rate than the standard rate for purchases. Worse, you’ll be charged interest from the day of the advance because cash advances don’t have a grace period.
Cash advances also usually include a fee that varies by card but generally works out to around 5% of the cash advance amount.
How can you avoid this fee and other charges associated with a cash advance? Keep money in savings you can access in an emergency, and never, ever use your credit card to get cash at an ATM.
Late Payment Fees
You will be charged this fee any time you make a payment after your credit card’s due date. This fee is capped by law at two different levels, $28 and $39.
Note: Late payment, returned payment, and overlimit fees were capped by the 2009 CARD Act, subject to annual increases based on inflation. That law set two separate caps, one for accounts with no late payments in the previous six months, and another cap for accounts with one or more late payments in the prior six months. For 2019, those caps are $28 and $39, respectively.
Make sure you avoid this fee by paying your credit card bill early or on time each month. Also note that, if your credit card payment is more than 60 days late, your card issuer can enact a penalty APR that is higher than your credit card’s ongoing interest rate. At that point, you’ll have late fees and mounting interest charges to handle, so it’s best to avoid late payments altogether.
Returned Payment Fees
You might be charged this fee if the payment you make on your credit card isn’t valid for any reason. Let’s say you mail in a check for your payment without realizing your funds are insufficient to cover it. Or, you accidentally make a payment out of a checking account you just closed instead of your new one.
Many credit cards will not charge a returned payment fee for a bounced check if you still make your payment before your due date. These fees are subject to the same CARD Act rules as late payment fees: they can be no more than $28 if there have been no returned payments in the previous six months and no more than $39 if there have been.
Over-the-limit (or "Overlimit") Fee
When you get approved for a credit card, you’re typically assigned a credit limit that defines the maximum balance you can have at any given time. If you make purchases that cause your credit card balance to surge over that limit, then it’s possible you’ll be hit with an over-the-limit fee.
Fortunately, the CARD Act of 2009 reigned in abusive over-the-limit fees. The legislation did so by mandating that credit card issuers can only charge these fees if cardholders “opt in” or agree to them ahead of time. Few cardholders do so, and as a result, most credit card issuers have stopped charging over-the-limit fees altogether.
Credit cards that do charge this fee can charge a fee of up to $28 if you haven’t gone over your limit in the previous six months and up to $39 if you have. You can avoid this fee by refusing to opt in. In that case, charges that would put your card over the limit will be declined. You can avoid that by monitoring your credit card balance or by not carrying a balance at all.
Balance Transfer Fees
Many credit cards allow cardholders to transfer a balance from another credit card account. Some credit cards even grant consumers low or no interest for a limited time on such balances. This can help you save on interest by consolidating high interest debt into a single, low or no interest account.
While at least one balance transfer card doesn’t charge a balance transfer fee, most cards in this category charge a fee of 3% to 5% of all balances transferred. So, if you were to consolidate $10,000 of debt, the balance transfer fee would be between $300 and $500. That may seem high, but the interest savings you can gain with these offers can more than make up for the initial fee.