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NerdWallet’s Guide to Credit Card Fees

Oct. 6, 2014
Credit Cards
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People love credit cards for their rewards, ease of expense tracking and various protections. What don’t people like about them? Fees. But honestly, they aren’t all bad. Here are the eight most common credit card fees, whether or not you should pay them, and tips for avoiding them:

Annual Fee

What is it? The annual fee is a fee charged — wait for it — annually! The fee is processed through your credit card automatically, typically coinciding with your credit card anniversary each year. Annual fees are commonly charged on rewards credit cards and secured credit cards.

Should I pay it? If you’re getting a secured credit card, you should compare annual fees and pick the card with the lowest fee that meets your needs. For a rewards card, make sure the cash or travel rewards you’re accruing significantly outweigh the fee.

Can I avoid it? There are plenty of credit cards without annual fees and many cards with annual fees waived for the first year. But remember, sometimes the annual fee is worth the cost because of the increased net rewards.

Balance Transfer Fee

What is it? A balance transfer fee is charged when you move a balance from one card to another. The fee is expressed in a percentage and is commonly assessed when borrowers move their balance from a credit card with one bank to a credit card with another bank — perhaps to reduce accumulating interest and pay off debt. A typical balance transfer fee is 3-4%, but 0% fees are out there as well.

Should I pay it? If you’re trying to pay off debt and it will take longer than six months, it may be a good idea to transfer your balance and pay the fee. Just make sure the amount you’ll save in interest outweighs the fee by calculating your potential interest with this credit card debt payoff calculator.

Can I avoid it? Most balance transfer cards charge you for the privilege of transferring your balance. Our balance transfer credit cards section allows you to filter by fee — check out the options, including those with no transfer fee, and pick the card that’s best for you.

Cash Advance Fee

What is it? A cash advance fee is paid for the privilege of using your credit card to obtain cash from an ATM or bank. The amount of cash available to you for a cash advance is listed on your statement. The fee incurred is generally between 2-5% of the advance taken.

Should I pay it? As a general rule, you shouldn’t take cash advances on your credit card. Aside from the cash advance fee, you’ll also likely have to pay an ATM fee and high interest rates. Instead, keep cash available in a savings account for emergencies.

Can I avoid it? By keeping an emergency fund, you can avoid paying fees and interest to take a cash advance from your credit card. It should absolutely be a last resort when you need cash and definitely not used for non-necessities.

Finance Charge 

What is it? The finance charge is the interest you owe on credit card balances rolled over from one month to the next. The amount of this charge will be based on your average daily credit card balance and APR.

Should I pay it? No!

Can I avoid it? Absolutely! Pay your credit card balance in full each month by the due date to completely avoid finance charges.

Foreign Transaction Fee

What is it? A foreign transaction fee is charged on purchases made outside the country and typically runs between 3% and 4%.

Should I pay it? No. It’s not necessary to pay foreign transaction fees — no matter which country you go to — because there are many credit cards without these fees.

Can I avoid it? If you never leave the country, you’ll avoid foreign transaction fees with any credit card. However, if you plan on crossing the border in the near or distant future, you can avoid foreign transaction fees by choosing a credit card without them.

Nerd note: There is an exception to foreign transaction fees being accrued while in the U.S. — if you order items from overseas merchants with a credit card that has foreign transaction fees, you’ll likely have to pay them. Just something to keep in mind while shopping online!

Late Fee

What is it? A late fee is assessed when you don’t make your credit card payment by the due date. This amount varies by card.

Should I pay it? Never!

Can I avoid it? Yes, this fee is totally avoidable. The easiest way to avoid it is by setting up an automatic monthly payment of at least the minimum payment by the due date. Otherwise, remember to make your payment on time every month manually. If you slip up, check out our strategies for getting a late fee waived.

Over-the-Limit Fee

What is it? The over-the-limit fee is charged when your debt balance exceeds your credit limit.

Should I pay it? No, you should never charge more to a card than your issuer-imposed limit.

Can I avoid it? The Credit CARD Act of 2009 makes it illegal for issuers to enroll cardholders in over-the-limit fees. You can enroll yourself in over-the-limit fees to avoid getting your card rejected at the register, but you shouldn’t charge anywhere close to your limit, so whether you opt in or not shouldn’t matter.

Returned Payment Fee 

What is it? A returned payment fee is charged when your payment is returned due to insufficient funds in your payment account. This fee may vary by card, but $35 is a common amount.

Should I pay it? No, you should only pay your credit card debt from accounts with sufficient funds.

Can I avoid it? You can avoid returned payment fees by only paying off what you can afford each month. Ideally, this will be your entire balance, but if your credit card balance exceeds your bank balance, just pay as much as you can.

Takeaway: For information on your credit card’s fees, check out the Schumer Box on your credit card materials and your monthly statements. And remember, only pay fees that benefit you in some way — like annual and balance transfer fees. The rest can be easily avoided with responsible credit habits and a well-stocked emergency fund.

Fees image via Shutterstock