How to Avoid These 9 Common Credit Card Fees
Credit card fees might be unpleasant, but they're still important to understand, especially when dealing with credit card debt.
Contributing Writer at Tally
July 30, 2022
Credit card fees. We all encounter them, even if we don’t enjoy them.
Sometimes, it feels like there’s a fee for just about everything. And keeping track of them is no easy task. Late payment fees, over-the-limit fees, balance transfer fees — the list goes on.
They might be unwanted, but credit card fees are still important to understand, especially when dealing with credit card debt. Some people get into credit card debt because they’re unaware of how they use their cards. That’s why we compiled a list of nine common credit card fees and the main things you should know about them — including how to avoid them.
9 common credit card fees and what you should know about them
Like many financial institutions, credit cards make money from the fees they charge. However, some types of credit card fees are entirely avoidable. Here are nine credit card fees you can avoid.
1. Annual fee
An annual fee is charged yearly for the convenience and perks of having a credit card, including travel rewards, airport lounge access, low annual percentage rates (APR) and more. Some credit cards come with annual fees, and others don’t. It’s one of the first fees you’ll see when applying for a credit card.
According to the Consumer Financial Protection Board (CFPB), the average credit card fee was $94 in 2020, but annual fees can be as low as $35. Depending on the card, they can also be quite high, ranging up to $500. Some credit card companies will waive the annual fee during the first year.
How to avoid an annual fee
Look for cards that don’t charge an annual fee or find a promotion that waives the first fee. If you have existing credit cards with annual fees, consider switching or downgrading to one that doesn’t. Review the features of different credit cards side by side and if the difference is not that significant, opt for the one that doesn’t have annual fees.
2. Finance charge
A finance charge is a monthly interest charge. It’s added to your account when you carry a balance beyond your credit card’s interest grace period.
Finance charges are added every month unless you pay your balance in full. The finance charge amount depends on your balance, your credit card APR and how your finance charge is calculated.
Because many credit cards have variable interest rates, this amount can change. With a lower interest rate, the finance charge will be lower. With a higher rate, the charge will go up. It will also change as your credit card balance rises and falls.
An exception to these finance charges is if the credit card offers 0% APR. No interest is generally offered as an introductory promotion for the first six to 18 months you have the card. While inside the 0% APR promotional period, you won’t incur finance charges.
Remember that some credit cards only defer the interest for that period. If you don’t pay the balance in full, you’ll incur all the interest charges on the remaining balance at the end of the promotion.
How to avoid a finance charge
You’ll want to pay your credit card balance in full every month to avoid a finance charge. It’s easy to incur debt with a credit card if you’re not careful about payments. If you don’t think you can pay your balance in full every month, you may want to stick to 0% APR offers only.
3. Late payment fee
A credit card issuer applies a late fee when you fail to make your minimum payment by the due date. While most credit card companies charge late fees, some may waive your first one in certain circumstances.
Credit cards charge late payment fees once for every billing cycle you’re late. Your first late fee can be up to $29 as of July 2022. If you’re late again within the next six billing cycles, your credit card bill can include up to a $40 late fee.
If you’re four to six months past due, your credit card may be charged off and is typically reported to the credit bureaus.
How to avoid a late payment fee
Pay at least the minimum amount due on time every month to avoid a late fee. You can also ensure you never miss a payment by setting up monthly automatic payments. Call your credit card company and ask for leniency if you’ve already missed your due date and incurred a late fee. They might be willing to reverse the charge if it’s your first time being late.
4. Balance transfer fee
A balance transfer fee is charged when you move a balance from one credit card to another. In most cases, the fee is a percentage of the amount you transfer (usually 3% to 5%), so larger balances come with larger fees. In addition, a credit card company may have a minimum transfer fee of $5 to $10.
For example, if you transferred $300 to a credit card with a 3% balance transfer fee, the fee would be $9. But if the credit card company also has a minimum fee of $10, then you’d pay the minimum fee instead.
Balance transfer fees are typically charged on balance transfer cards, which can be an effective way to save money while paying down debt. They're a good way to take advantage of perks, like a lower APR. That’s why these fees are often charged for credit cards that offer a promotional rate for an introductory period.
How to avoid a balance transfer fee
Try to find cards that don’t charge a balance transfer fee or negotiate with your credit card provider. Most people think credit card fees are set in stone, but some credit card providers are willing to forgo fees if you ask.
5. Over-the-limit fee
An over-the-limit fee is charged when you exceed your credit limit. Credit card companies must get your consent for over-limit transactions; the Credit CARD Act of 2009 requires you to opt in.
If you opt-in, an over-limit fee is typically $35 per transaction, but federal rules stipulate that it cannot be more than the amount you exceeded your limit. So, if you exceed your limit by $5, the credit card company can only charge up to a $5 over-the-limit fee.
You can receive a second over-limit fee if you’re over the limit on a second billing cycle. However, you cannot receive additional consecutive over-limit fees after the second one.
How to avoid an over-limit fee
You can avoid over-the-limit fees by keeping your balance below the credit limit or not consenting to over-limit fees. It’s also a good idea to create a firm monthly budget to avoid overspending your credit card and exceeding the credit limit.
6. Cash advance fee
A cash advance fee is charged when you use your credit card to get cash. Three common examples of cash advances are overdraft protection, convenience checks and cash withdrawals from an ATM using your credit card and PIN.
The fee is charged for every cash advance transaction and includes other credit card fees, like an ATM fee. A cash advance fee is a percentage of the transaction amount (usually 3% to 5%).
How to avoid a cash advance fee
To avoid cash advance fees, try not to use your credit card to access cash like a debit card. If you have the option to pay using your credit card, it’s OK to do so responsibly. However, if cash is the only payment option, it’s best to use your debit card to withdraw cash from an ATM.
7. Foreign transaction fee
A foreign transaction fee is charged when you purchase in a foreign currency. While some credit cards don’t charge processing fees for foreign transactions, others charge 1% to 5% of the transaction amount for international transactions.
Keep in mind that you don’t have to be outside of the United States to be charged a foreign transaction fee. The fee can apply to all currencies other than U.S. dollars. For example, if you buy an item online from overseas, and the seller only accepts their home currency as payment, your credit card may charge you a foreign transaction fee.
How to avoid a foreign transaction fee
If you want to avoid a foreign transaction fee and know you’ll be making purchases in other currencies, try to plan and get cash in the foreign currency you need. Alternatively, you can seek a credit card that doesn’t charge foreign transaction fees.
8. Returned payment fee
A returned payment fee is charged when your bank returns your credit card payment. A common example is when your bank account has insufficient funds to complete a payment.
A returned payment fee is charged every time your payment is returned. The amount is generally between $25 and $40, but this will vary by card issuer — you can find the exact amount in the card terms. For example, American Express states its returned payment fee is $40.
How to avoid a returned payment fee
Don't make it if you lack the funds to cover your credit card payment. Instead, contact the credit card company and explain your situation. They may be able to change your due date or offer other help if you’re in financial hardship.
9. Card replacement fee
A card replacement fee is charged if you request a new physical credit card. Many companies will give you one replacement card as a courtesy.
A card replacement fee can be between $5 and $15 and can come with additional charges if you need a rush order.
How to avoid a card replacement fee
Contact your credit card company and inform them of your lost credit card, then politely ask if they can offer a free replacement. Your credit card company wants you to keep using your card, so they may be amenable to waiving your card replacement fee, especially if this is your first time getting a replacement.
Remember, credit card companies make money off fees
The convenience of having and using a credit card comes with strings attached. If you’re applying for a new credit card, take note of these nine common credit card fees and consider them when deciding if an offer is right for you.
Credit cards are handy, as long as you don’t abuse them. They can also be quite helpful with their travel rewards, airport lounge access, 0% balance transfers and other perks. The key is to be smart about your finances to make the most out of your credit cards and avoid paying unnecessary fees.
If credit card payments and fees overwhelm you, Tally† may help. Tally manages your credit card payments and offers a lower-interest personal line of credit, allowing you to pay off higher-interest credit cards efficiently.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.