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Credit Card Fees – Best Ways to Save Money on Credit Cards

Paying credit card fees is a waste of money! Learn the best ways to save money on credit cards such as Visa and American Express. Here are seven types of credit card fees and how to avoid them.

“Studies show that people spend more when paying with a credit card than with cash, so they are more likely to supersize their fast food order they buy with plastic,” says financial expert Ethan Ewing.

Always use cash when you buy things – it’s one of the oldest money saving tips in the book, but it’s extremely effective. If you’re in debt, read The Total Money Makeover: A Proven Plan for Financial Fitness.

And here are seven types of credit card fees and how to avoid them…

Credit Card Fees – Best Ways to Save Money on Credit Cards

1. Annual credit card fees: These fees are charged to borrowers for the privilege of having a card. Most often, annual fees occur with secured cards and cards with perks, such as rewards or rebates. To save money on credit cards, ask the card issuer if the fee can be waived, or if an alternative card offers no fee. Or look for no-fee card. Beware: some credit cards have no fee for the first year, but thereafter, a fee applies.

2. Credit card application fees: Some secured credit cards charge borrowers an application fee. To avoid this credit card fee, check before applying. If a fee exists, ask if it can be waived. If not, apply for a credit card that does not charge a fee. Remember that even small application fees add up fast, and won’t help you achieve your financial goals.

3. Balance-transfer and cash-advance fees: These fees are charged when borrowers transfer a balance from one card to another, or withdraw cash against a credit line. Typically, these are one-time fees of 1 percent to 3 percent of the amount transferred or withdrawn. In addition, interest charges apply to the balance. Sometimes a special interest rate applies, which might be higher or lower than the regular interest rate. To avoid this credit card fee, watch for special offers, ask if fees can be waived, or avoid transferring balances or taking cash advances.

4. Finance charge: A charge for carrying an outstanding balance on a credit card, based on a set annual interest rate. Many cards charge interest on the average daily balance over a two-month period, meaning that interest accrues even if the borrower pays the balance in full one month. The finance charge will vary depending on the interest rate, account balance and method of calculating the finance charge. To avoid this credit card fee, pay the balance in full each month.

5. Insufficient funds (NSF) or returned check fee: A fee charged by the issuer when a check or electronic payment is returned by the bank for insufficient funds. The credit card issuer’s fee is typically $30 to $40, and most banks charge an additional NSF fee of $25 to $30 per invalid check or transfer. To avoid this credit card fee, make sure you have money available to pay bills. If you’re struggling with financial debt, read How Do I Pay Off Credit Card Debt?

6. Late fees: These are the most common credit card fees, and the cure is simple: Pay on time. Each missed deadline incurs a fee, typically around $30. In addition, many credit card issuers will increase the interest rate to the “default rate” – typically the highest interest rate they can charge – after a late payment. To avoid this credit card fee, allow at least seven days for payments by mail, or schedule payments online or by phone.

7. Over-limit credit card fees: Over-limit fees are penalties for charging more than the limit. Some credit-card issuers have lower credit card limits, sometimes even lowering account limits below an existing balance. Thus, some borrowers who thought they were below their limits suddenly have found themselves exceeding limits. To avoid this credit card fee, keep balances significantly below the credit limit, and keep a close eye on the “credit available” amount.

For more money saving tips, read the Best Ways to Save Money Fast.

If you have old credit cards that you don’t use, you might want to read Should You Close Old Credit Card Accounts?

Do you have any thoughts on credit card fees or saving money on credit cards? Comments welcome below.

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11 thoughts on “Credit Card Fees – Best Ways to Save Money on Credit Cards”

  1. Laurie Pawlik-Kienlen

    Thanks for your tips on credit card fees! Credit cards like Visa, MasterCard, Discovery, etc can be used to save money if you’re organized and not given to spending sprees. Or, if you don’t have family members who take your credit cards shopping. 🙂

  2. If you can’t afford it don’t buy it. It is almost impossible not to have a credit card now a days, but pay it on time and don’t use it is much better then playing with fire.

  3. Cyprus – a credit card will allow you to carry a balance from one month to the next. Of course they charge interest on the balance that is carried but you typically only have a minimum payment to make each month. The minimum amount you must pay is based on the outstanding balance of the bill each month.
    A charge card does not permit a balance to be carried from one month to the next. A charge card doesn’t have an annual percentage rate because you can’t carry a balance. The American Express green card is probably the most common type of charge card. The statement balance is required to be paid in full each month.

  4. I was mistaken about AMEX not charging a finance charge on one of their cards. In the meantime, I cancelled my Visa, and have gone primarily to cash transactions, with occasional debit card use (as little of that as possible – shooting for none). I have also limbered up my checkbook.

    I may get another credit card to use for certain online charges not payable by PayPal, and for emergencies. It will depend on the terms.

  5. I have a credit card and pay my fees every month. But, I just heard about charge cards — what’s the difference between credit cards and charge cards?

  6. People who use credit cards have no idea how much they’re spending. They realize it only when they get statements, so using cash is better.

  7. Lee – the situation you described can also be caused when you take a cash advance. Charging $200 of purchases and paying the balance on time should not incur a finance charge. However, if you took a $50 cash advance during the month, the credit card company will often apply the finance charges against your entire balance. Most companies will charge different interest rates for purchases and cash advances and then prorate your payment against both. Unless you are aware of it, you end up with a small balance that carries into the next month causing all of your purchases to be subject to the finance charge for the next month.

    You may have had a transaction that is considered a cash advance and you were not aware of it. I sent money to my son using Western Union. I did the transaction over the telephone and used my credit card. The credit card company considered this a cash advance and levied finance charges on my entire balance (including purchases) and pinched me for a cash advance fee. I went online and repaid the advance immediately by transferring money from my checking account to cover it. The credit card company prorated the payment against the advance and purchases and continued to accrue finance charges through the end of the billing cycle.

  8. Thanks for your insight. I’ve since found out that AMEX (or, at least, one of their cards) is not currently charging interest on an average daily balance.

  9. Lee – some companies use two-cycle billing. In some cases, that means that if you did not quite pay off your balance in May, then did pay the balance in full in June, you still would be charged a finance fee for the balance in May. For other cards, two-cycle billing means interest is calculated on the average daily balance you carry every day for two months (60 days) — no matter how much you paid on the balance. This practice eliminates the grace period. Some other cards state that interest accrues from the date the statement is mailed to when it is paid, so that even if you paid the last bill in full, you could be seeing interest charges on the balance from the statement mailing date to the date you paid. To be sure, check the “Finance Charges” section of your account disclosures.

    With any of these situations, paying ahead will not be likely to eliminate interest charges. Instead, the card company will just receive your payment on those interest charges sooner.

    Good for you for planning to use cash more often. As far as regular credit transactions, if you overpay, some companies create a balance on your account, while others send a refund check to you. Call the company and ask them to explain if a credit would benefit you — or if they can change the finance charge policy on your card. If not, you might keep your eyes open for a credit card that does not use two-cycle billing.

  10. I was just stung with a monthly finance charge, although I have always paid my balance in full every month. After a little investigation, I have determined to pay cash for most of what I used to charge. Question: If I overpaid my balance by, say, $200, would they still charge me the finance charge on the next statement, even though they will be holding $200 of my money during that month? I would hold my charges to under that amount (or close to it.)