In our dreams, we’d be able to get great financial products without paying a cent. You’d have a wallet full of the best possible rewards credit cards — for free. But credit card issuers need to make money, too, so they charge users fees.
You can’t avoid fees completely, but here we highlight three that you should never, ever pay.
1. Late fees
Some months, you may not be able to pay your entire balance off, and you’ll have to pay interest for a while. But there’s no excuse for paying a late fee. Stay organized, and make at least a minimum payment by the due date. Tools — such as text alerts from your credit card company and auto-pay options that deduct the minimum payment from your checking account every month — can keep you on track.
Part of what makes late fees so insidious is that they’re often part of a one-two punch. If your payment is late, you might trigger not only the late fee, but also the penalty interest rate. Late payments may also give the card issuer a reason to pull back on some of your credit card perks, like 0% interest on balance transfers.
Another reason you should pay on time: Your payment history makes up a huge percentage of your credit score. Late payments, especially if you make a habit of it, may bring your score down.
Nerd tip: Even if you pay your bill on time religiously, you may slip up once in a while. If you’ve never been late before, you might be able to get your late fee waived.
2. Foreign transaction fees
Credit card issuers often charge customers for using their plastic overseas. Whether you’re using your credit card on your trip to Europe, or simply buying something from a company that’s based overseas, foreign transaction fees are often structured as a percentage (usually 3%) of your purchase. That means spending $100 abroad will actually cost you $103.
Fortunately, there are lots of good credit cards out there that don’t charge foreign transaction fees. That’s why there’s no good reason to pay these fees on your credit card purchases. And while you’re looking for a card that waives its foreign transaction fees, consider looking for one with travel rewards, such as airline miles, free checked bags and travel insurance, too. If you’re globetrotting, you should have a card that fits your lifestyle.
3. Cash advance fees
If you’re short on cash, it may be tempting to stick your credit card into the nearest ATM. But using your credit card for a cash advance is almost never a good idea, because cash advances tend to be very expensive. Here’s how the credit card companies will make you pay for the privilege of drawing cash on your line of credit.
- Cash advance fees. In many cases, you’ll be charged a fee just for withdrawing the cash. There are some credit cards with no cash advance fee, but they’re the exception to the rule.
- Higher interest. The interest rate you pay on cash advances is often higher than the rate you’re charged for purchases or balance transfers. So if you’re going to take this route, make sure you know what you’re getting into.
- Interest from the get-go. When you make a purchase on your credit card, there’s a grace period before the interest kicks in. Usually you have until your next statement is due before you start accruing interest. That’s why you won’t pay any interest at all if you pay your balance in full every month. But when you take out a cash advance, the interest sometimes starts accruing right away, with no grace period. Even if you pay it off when the bill comes, you’ll still might still owe a pretty penny in finance charges.
Nerd tip: Watch out for that credit limit. Your card may have a separate credit limit for cash advances, usually lower than the overall credit limit for the card.
If you do opt for a cash advance from your credit card, make this the last time you ever need one. Build up an emergency fund to see you through the next tight spot.
Credit card fees are not necessarily bad. Annual fees, for instance, can be worth it in cases where the credit card’s rewards are worth more than the fees. But some credit card fees are just a bad deal. Steer clear if you can, and if you can’t, learn your lesson and do what you must to avoid them in the future.
Image via iStock.