You may be pleased with your credit card’s relatively low interest rate, but your total costs don’t end there. Why? You have to deal with credit card fees as well. To help you avoid accumulating more debt, here are the different types of credit card fees and how to avoid them.
Late payment charges
You probably already know how this works: if you don’t pay your credit card on time, you get slapped with a pate payment fee, which usually costs around $10 to $15, depending on the credit card issuer. Sometimes, the problem gets nasty as the penalty is applied more than once during a statement period or the financial institution collects a late payment fee every week until you pay up.
How to avoid it: Know your due date by heart and always pay your card before the day arrives. You can put up a reminder on your smartphone or PC. For better results, you can set up automatic payments with your credit card.
These fees are charged when a cheque you wrote (outward) or a cheque you deposited (inward) bounces. For the outward scenario, your account doesn’t have enough funds for your cheque to clear. Inward means the cheque you deposited is dishonoured by the institution of the person who gave you the cheque.
How to avoid it: You must always monitor your account before writing a cheque to avoid outward dishonours, but inward dishonours are much trickier since it’s beyond your control.
Cash advance fees
You get charged with a cash advance fees whenever you withdraw cash from your credit card. These are typically 2 to 4 per cent of the withdrawn amount. The cash advance would also collect a higher interest rate and perhaps an ATM fee if you didn’t use your institution’s cash machines.
How to avoid it: The only way to avoid a cash advance fee is to not get a cash advance. Because of the costs associated with a cash advance, getting one could mean that you’re having difficulty in meeting your financial commitments. Our tip? Account for every dollar you spend, develop a budget, and then stick to it.
Over-limit fees occur when you charge something to your credit card and it exceeds your credit limit. The fee varies, depending on the card issuer. Some institutions impose a $10 fee, others ask for $40. However, an over-limit fee should be the least of your worries. Some lenders would increase your interest rate, reduce your credit limit, and/or hurt your credit score.
How to avoid it: The trick is to monitor your spending. Always know how much you’ve spent and how much you can still afford to spend. If you’re dangerously close to the credit limit, stop using your card. If you have the opportunity, pay off a significant part or settle the entire balance before you get to that point.
Currency conversion fees
When you use your credit card abroad and you decide to be charged in your home currency, you get charged with a currency conversion fee. These fees usually range from 3 to 7 per cent of the transaction, depending on the credit card.
How to avoid it: This is simple enough—just ask the establishment to charge you with the local currency to avoid currency conversion. However, you still get charged with a foreign transaction fee (see below).
Foreign transaction fees
When you use your credit card abroad and you decide to be charged in the local currency, you get charged with a foreign transaction fee, which is usually 2 to 3 per cent of the transaction.
How to avoid it: Not all credit card providers charge foreign transaction fees. Choose one that doesn’t so that you avoid it altogether.
Cost recovery fees
Otherwise known as surcharges, cost recovery fees are those insidious add-on costs that merchants add to your bill to make up for their expenses in processing the transaction through credit card. Cost recovery fees are normally around 2 per cent of the transaction, although some merchants (e.g. taxis, airlines) slap surcharges from 10 to 24 per cent.
How to avoid it: Ask the establishment before using your credit card. If there is a cost recovery fee, use something else to pay for the transaction, like a debit card or cash.