Credit card holders can spend hundreds of dollars on fees annually just to use their cards. But you can avoid fees by choosing the right credit cards and using them wisely. Here’s a look at…
Credit card holders can spend hundreds of dollars on fees annually just to use their cards. But you can avoid fees by choosing the right credit cards and using them wisely. Here’s a look at how.
Avoiding Credit Card Fees
Know what triggers your credit card fees so you can sidestep these charges.
Foreign Transaction Fees. Many popular travel credit cards come without foreign transaction fees. Finding and applying for one without the added fee can save you money, whether you constantly travel or only occasionally leave the U.S. Foreign transaction fees are usually around 3 percent, so if you spend $2,000 on a trip abroad, that’s $60 in savings — all for just picking the right card.
Late Payment Fees and Penalties. Along with charging a fee of up to $38, some credit cards increase the interest rates for credit card users who make late payments. Fortunately, there are ways to prevent you from missing monthly payments.
Setting up autopay for your card is the easiest way. Many credit cards come with this feature, which allows you to automatically pay the card in full, make only the minimum payment or pay a custom amount. Turning on autopay for at least the minimum payment is the best move for most people. Doing so will, at a minimum, prevent your credit card company from charging a late payment fee.
One potential drawback of this method is overdrafting. If you don’t have enough money to cover your payment, you may be charged an overdraft fee by your bank — or a returned payment fee by your credit card issuer if your bank won’t let you carry a negative balance. If you’re worried about overdrafting, set a recurring calendar event on your phone or in your email the day before your payment is due. Then you can check to make sure you have enough money in your bank account before sending the payment.
Cash Advance Fees. For credit card cash advances, issuers typically charge either a percentage or a flat-rate fee, whichever is greater. Issuers start charging interest immediately, and many charge a higher annual percentage rate on cash advances than on regular purchases. Of course, you can avoid all these costs by not taking out a cash advance in the first place.
If you need cash on short notice, consider other alternatives, such as borrowing from your savings or using a person-to-person transfer via PayPal or Square’s Cash App, though you may face additional fees. There is also a service from Discover that offers short-term cash advances without additional fees beyond your regular APR. If you still think a cash advance is your best option, compare your choices and select the one with the lowest costs.
Interest Fees. The best way to avoid interest is to pay your balance in full during your card’s grace period. But what if you don’t have the cash on hand to cover it?
The solution here is more psychological than technical: Treat your credit card like a debit card. Don’t spend money if you don’t have it. Every time you are about to swipe your card — whether it’s on a $5 latte or a $600 flat-screen TV — ask yourself whether you can afford the purchase and whether you need it.
Taking a moment to think through a purchase can be enough to fend it off.
Reward Recovery or Reinstatement Fees. Some issuers charge a fee when cardholders reactivate rewards that have simply expired. You can avoid this fee by knowing your card’s terms regarding rewards and, if points or miles do expire, using them during the allotted period.
An alternative solution is to transfer the rewards to another program that doesn’t have a deadline. These programs vary by issuer. Many popular travel cards allow point transfers to hotel and airline rewards programs, but keep in mind that transferring your points may reduce their value.
Anytime you’re exploring a points transfer, check to make sure you can transfer at a 1-to-1 ratio.
Over-Limit Fees. Over-limit fees are assessed when a cardholder exceeds his or her spending limit on a credit card. Cardholders must opt in to an over-limit fee, which makes it easy to avoid. Some cardholders may decide that paying the fee is worth the added spending power, though.
“Opting in to an over-limit fee can be worth it if you’re worried about hitting your limit and not being able to use your credit card,” says Tucker Spillane, credit analyst at commercial lender Eastern Funding. “You have to assess what’s worse: paying a fee or not being able to use your card.”
Issuers have to disclose the fee when the cardholder opts in. Most charge $25 the first time you exceed your limit and up to $35 if you’re over your limit a second time within six months. The fee cannot be larger than the amount by which you exceed your limit.
Can You Negotiate Credit Card Fees?
If you can’t avoid certain credit card fees, you might be able to negotiate them. But you shouldn’t bank on it.
“Every credit card company has different policies on fee rebates, but they tend to be more open to waiving a fee if you are a long-standing customer who uses the card frequently, with an account in good standing,” says Andrew Rostami, head of unsecured lending and cards at Citizens Bank.
If a credit card company sees that you’re a responsible, loyal customer who nearly always pays your credit card bill on time, and you happen to miss it once, the company is probably more willing to waive a fee. Issuers want to keep their best customers happy, or they risk losing those customers to a different credit card company.
But all fees are not equal when it comes to negotiating. “Companies are less likely to waive transaction fees like balance transfer fees since they provide significant value to the customer with a zero percent loan,” Rostami says.
Still, it never hurts to ask a credit card company’s customer service representative if he or she can waive a fee or perhaps offer a lower APR. If you do try to negotiate a fee, mention that you’re exploring credit cards from competing issuers. Showing that you’ve done your research and know about other products on the market could get you the best deal possible.
When Credit Card Fees Pay Off
You can avoid many fees just by getting a card that doesn’t have them. Sometimes, though, a card with a fee can actually save you money.
Annual Fees. There are plenty of cards on the market with no annual fees. But higher-tier cards with annual fees may have better rewards programs. So the right rewards card may be worth its fee.
Consider the Chase Sapphire Reserve, which has an annual fee of $450. At first, that amount might seem jarring. But the card comes with an annual credit that’s worth $300 for travel expenses. If you already spend $300 on travel per year, you can deduct that from the annual fee. Now you’re left with $150.
The Chase Sapphire Reserve earns three points per dollar on travel and dining at restaurants and one point per dollar on all other purchases. And when you redeem your points for travel through Chase Ultimate Rewards, they’re worth 50 percent more. If you spend $3,500 on travel or dining each year and redeem your points for travel through Chase Ultimate Rewards, you’ll get a value of $157.50, which covers the rest of the annual fee.
This is an example of a premium card for those who spend a lot on travel and dining. But the same logic applies with cards that earn cash back on other everyday categories such as groceries and gas.
Anytime you’re considering a card with an annual fee, you should run your spending habits through a similar analysis before applying.
Balance Transfer Fees. Finding a card with no balance transfer fee is rare. Fees usually range from 3 to 5 percent of the amount transferred, so the cost can be substantial depending on the size of your balance. Still, transferring a balance to another card can save you a lot of money by extending the amount of time you have to pay off debt at a lower interest rate — or with no interest at all.
As with an annual fee card, weigh the pros and cons before making a decision. Let’s say you have a $5,000 balance on a card with a 17 percent APR. If you take 15 months to pay off the balance, you’ll pay $586 in interest. But if you transfer that balance to a card with a zero percent APR for 15 months for a fee of 3 percent of the balance, or $150, you’ll save $436.
That’s a pretty good deal, assuming you will pay off the balance before the promotional APR period ends.