It’s well-known that credit card companies generate revenue through fees and interest rates. Much has been reported about how many companies set minimum payments too low for individuals to effectively pay off their debts.
While consumers are often aware of this tactic, there are other hidden fees to be wary of when applying for a credit card. Understanding these can help you avoid additional costs and higher interest rates.
Sneaky Late Payment Fees
Avoiding late payment fees can be more challenging than it seems. Many credit card companies include fine print in their agreements specifying that payments must be received by a certain time on the due date. For instance, if they require payment by 2 p.m., they can charge you late fees even though the mail doesn’t arrive until 4 p.m.
Additionally, many online payment systems are designed to catch customers off guard. While credit card companies should be able to process online payments quickly, some intentionally take more than a day to post payments made online. If you realize you’ve forgotten to send in your payment, you might log on to your account only to find that you have to pay extra fees to post your payment the same day. This leaves you with the choice of paying either a late fee or a processing fee—an unfair dilemma.
Sneaky Over the Limit Fees
Avoiding over-the-limit fees might seem straightforward, but credit card companies have found sneaky ways to trick their customers into paying them.
One common tactic involves the sudden lowering of your credit limit. You might think you’re safe if you owe, say, $1,500 on a card with a $3,000 limit. But credit card companies can lower your limit at any time, putting you at risk of exceeding it.
What’s even more frustrating is when they lower your limit to a level that guarantees you’ll go over when interest is applied to your current balance. This essentially sets you up to max out and incur over-the-limit fees, even if you make your minimum payment.
Sneaky Annual Fees
If you’re new to owning a credit card, you might get caught off guard by annual fees. Not all credit cards are the same, and a card that seems to have a great low-interest rate might come with a hefty annual fee. These fees are common, especially on cards with low interest rates, high credit limits, or generous rewards.
Annual fees can range from $50 to $100 on the lower end, but some cards charge $500 or more. You’ll incur these fees regardless of how much you use the card. Make sure you know exactly what you’re signing up for when you apply. Often, these fees are waived for the first year, and by the time they appear 12 months later, you might have forgotten about them. And that can be a painful surprise.
Sneaky Balance Transfer Fees
Under the right circumstances, a balance transfer can be a great financial move, allowing you to shift high-interest debt to a new card with lower monthly interest charges. However, most balance transfers come with specific terms and conditions. For instance, the lower interest rate often applies only for the first six to twelve months, so you need to make significant progress on your debt during this period.
Another important consideration is the “balance transfer fee.” Many credit cards charge a fixed percentage of the transferred amount, typically ranging from three to five percent. For example, transferring a $10,000 balance could cost you $500 upfront. Be sure to factor these fees into your calculations when considering a balance transfer.
Sneaky Cash Advance Fees
In a pinch, you can use your credit card to get direct access to cash by withdrawing from an ATM. While it might feel like using your regular bank card, the financial consequences are much different. Most credit cards start charging interest on cash advances immediately, regardless of when you repay the amount. Additionally, there are cash advance fees, which can be either a flat rate or a percentage of your withdrawal.
To avoid these cash advance fees, it’s best not to use your credit card for this purpose. Keep your regular bank card handy for cash needs and reserve credit card cash advances for true emergencies only.
Expedited Payment Fee
Yes, it’s a real scenario. If you’re in a rush to make a payment, often over the phone, your credit card company might charge you for it. This situation can arise when you’re diligently working to improve or repair your credit score by paying off your credit card balance at the end of every billing period. However, life can throw curveballs, like a delayed paycheck or a busy schedule causing you to miss the usual payment deadline.
To maintain your credit card’s flawless status, you contact the company and explain your situation. They offer to accept an expedited payment to ensure your balance shows zero at month’s end, preventing any interest charges and keeping delinquent payments off your credit report. Unfortunately, they’ll likely levy a fee for this service. It might seem unfair, but to them, it’s just business.
Foreign Transaction Fee
Where you acquired and regularly use your credit card can make a difference. If you’re reading this, chances are your credit card was acquired in the United States and operates in U.S. dollars. However, using your card extensively in a foreign country might lead to additional charges. Many credit cards impose fees for international transactions, even for simple currency conversions. You might even encounter these fees when shopping online on a website based outside your home country.
For frequent travelers, it’s wise to seek out a card tailored to your globetrotting lifestyle. There are several options available. Otherwise, consider limiting credit card use while on vacation unless absolutely necessary. It’s often better to plan ahead and carry enough cash in the local currency.
Returned Payment Fee
This scenario is becoming less common as electronic transfers gain popularity for payments. However, if you’re still mailing monthly checks to your credit card company, a bounced check will incur a fee. The same applies if you have insufficient funds in your checking account for an automatic payment.
The frustrating aspect of a returned payment fee is that it often accompanies a late payment fee, effectively doubling the financial blow. To avoid this fee, it’s crucial to maintain diligent financial tracking. Ensure your bills are paid promptly and that you have sufficient funds in your accounts to cover any checks or automatic payments.
Adding Fees after the Introduction
Numerous credit card companies attract new customers with enticing introductory rates, but it’s essential to scrutinize the fine print. These attractive offers often transition into costly arrangements after a few months of use. Moreover, credit card companies retain the authority to adjust rates and limits even after the introductory period concludes.
Unbeknownst to many customers, they end up with high-interest, variable-rate credit cards laden with fees because they assumed the initial offers would endure indefinitely.