Credit card fees can add up
Credit card fees used to be like the secret you kept in the closet so your family and friends wouldn't know it existed, but in recent years they're much more visible.
You should understand that "fees" increase your effective credit card interest rate and finance charges. The simple reason credit card companies like fees is their ability to disguise this increase in finance charges.
Here is a partial list of the credit card fees that may apply to accounts:
Annual fee
A charge that you pay once per year for the "privilege" of having a credit card account with the company; this fee increases the true finance charge. It sometimes is called a membership fee as if you just joined an upscale gym or country club.
Cash advance fee
When you request cash from an ATM instead of using your credit card for a purchase at your favorite retail store, you often are charged a fee. Sometimes, your interest rate increases drastically for cash advances. You might even "enjoy" both a fee and an increased rate.
Balance transfer fee
This charge often applies when you transfer an outstanding balance from another credit card to a new one. For example, you find a great offer from a new credit card that has a lower interest rate and a feature that charges no interest on balance transfers for six months.
Sound wonderful? Then you learn that there is a 3% "balance transfer fee", which is immediately charged when you make the transfer. Does a 3% immediate charge mean your transfer is still "free"?
Over-limit fee
Should you forget how much available credit you have and charge a purchase over your stated limit, your purchase will probably be approved. But your credit card company may charge you a large over-limit fee for this privilege. It might be a one-time charge or a significant increase in your interest rate.
Late payment fee
If you forget your payment date and send your check a bit beyond your due date, you might find a late fee equal to more than your payment amount. You might also be liable for a large increase in your interest rate.
Read your credit card agreement carefully as these and some other fees may be included. You should realize that these fees serve to increase your effective interest rate and finance charges.
Credit card fees: Those to accept and those to avoid
Generally speaking, credit card fees please card issuers and dismay cardholders. Some fees are perfectly understandable, like late payment charges. Others can be more frustrating, like annual and balance transfer fees.
What you can do
You don't have to sit idly back and accept all of the various fees that you might face with some credit cards. Here are some fees that you might be able to avoid if you do your homework.
Look for credit cards without annual fees. In most cases, annual fees serve little purpose but to increase the effective finance charge you pay. For example, an annual fee of $50 isn't staggering, but consider this. You have an average balance of $1,000 on your card and an 11% interest rate (which is quite good).
Over the course of a year, your finance charge would equal around $110 at 11%. However, add your annual fee and your total charges now equal $160. That translates to an effective annual percentage rate (APR) of 16%! Your finance charges are not so attractive in this case.
You might get your late payment fees waived. How? Sometimes, all you have to do is ask. Often called "bad boy fees" for obvious reasons, many credit card companies will waive or rebate these fees if you have not been chronically late with your payments.
Your credit card company may choose to have you keep your account open and active rather than have you get another card and transfer your outstanding balance.
Balance transfer fees may not be negotiable, but you may still be a able find credit cards that offer no balance transfer fee deals. Credit cards that offer a fixed period of no interest charges for balances transferred from other accounts often have these fees. Other credit cards may not have a "0%" special deal, but may offer low interest for a period of time with lower or no balance transfer fees.
Using a calculator, you can easily compare the finance charges for "free" transfers (with balance transfer fees) and a low interest offer for transfers. In some cases, you'll find that the interest discount offer may actually be better than the "free" transfer deal.
