Using your credit card seems simple until you notice unexpected charges on your statement or account balance, leaving you wondering where that money went.
These surprise deductions are often the result of hidden fees buried in lengthy credit card agreements.
To help you, here’s a guide to the most common hidden fees charged by credit card issuers and tips on how to avoid them.
What are the main hidden credit card fees?
Here’s a breakdown of common fees and practical strategies to avoid them:
Late payment fee
As the name suggests, these fees are charged if you miss the payment due date. Even a single day of delay can result in a charge, depending on the terms of your credit card agreement.
Late fees typically range from $8 to $40, depending on the frequency and severity of late payments.
How to avoid it?
Choose a card that doesn’t charge late fees, although these are rare. The best solution is to pay your bill on time every month.
Over-limit fees
This fee applies when you exceed your credit limit, even by a small amount. The good news is that many credit card issuers are required to notify you when you’re about to incur this fee.
How to avoid it?
Monitor your spending closely to stay within your credit limit. To maintain a healthy credit score, aim to use less than 30% of your available limit.
Returned payment fees
These fees occur when a payment you’ve scheduled is returned due to insufficient funds. The issuer charges a penalty, often around $40, which is added to your next bill.
How to avoid it?
Ensure you have enough funds in your account before scheduling payments. Regularly review your balance and upcoming bills to prevent unexpected overdrafts.
Other common credit card fees
Annual fees
While not technically hidden, annual fees can add up, often costing hundreds of dollars annually.
How to avoid it?
Choose a card that aligns with your budget and needs. Some issuers waive annual fees if you meet certain spending thresholds or bundle other financial services.
Cash advance fees
Cash advances involve withdrawing money using your credit card, whether at an ATM or through a bank transfer. These transactions typically incur high APRs and additional fees.
How to avoid it?
Avoid using your credit card for cash withdrawals. Reserve your card for purchases within your credit limit.
Foreign transaction fees
These fees are charged for transactions involving currency conversion, such as shopping on international websites. Rates usually hover around 2.5% of the transaction value but can vary.
How to avoid it?
Look for credit cards that don’t charge foreign transaction fees, especially if you frequently travel or shop internationally.
General tips to avoid unnecessary credit card fees
There are three key strategies to minimize unnecessary charges:
1. Choose the right credit card
Select a credit card that matches your financial habits and needs. For example, balance transfer fees can often be avoided, but balance transfer cards may help you pay off debt faster.
Choose based on your situation.
There are numerous credit card options available, and you should aim to find one that best suits your financial profile.
2. Read the terms carefully
Though lengthy, credit card agreements contain critical details about fees and charges. Take the time to read them thoroughly to understand how your actions will impact your finances.
If you have any doubts, you can always contact your bank. However, the best approach is to fully understand all the terms and conditions.
While some fees might seem hidden when you check your statement, they are typically outlined in your credit card agreement since they are essential disclosures.
3. Pay your bill on time
Timely payments save you from late fees. While an occasional missed payment may not seem costly, over time, these fees can add up to over $100 in unnecessary expenses.
If you find yourself unable to pay your bill, it’s a clear sign to reassess your spending habits and create a stricter financial plan.
Credit should not be a tool for accumulating debt but rather a means to manage your finances responsibly.