I don’t keep my appreciation for credit cards a secret. My cards are financial tools I can use to save money, protect my purchases, and earn rewards.
I also like to use them strategically, which led me to the decision to close out an old card with a high fee and start looking for a new credit card to use.
The old card was the Gold Delta SkyMiles Credit Card from American Express. But since I moved from Atlanta and to Boston, I rarely fly Delta anymore. Using an AMEX also puts more limits on me than other options, since many establishments in my neighborhood don’t accept the card.
So I started to explore what card would provide the best benefits for the lowest fees. When I heard about the Chase Sapphire Reserve card that came with insane perks and points bonus, I was stoked.
That is until I saw the high annual fee for the card.
For me, that was a no-go. At this time, that cost isn’t worth it to me. So the search for a new rewards card continues. And the fees associated with each card will play a big role in my final decision.
Credit Card Fees Have a Big Impact
Fees are par for the course when it comes to credit cards. Credit card companies are in the business of generating profits, and fees are one way to accomplish that business goal.
There’s nothing inherently wrong with that. But it does put the responsibility on you to determine what fees you accept. Depending on the credit card you choose, there are so many different fees that it can be confusing to understand which ones should be avoided and others that are worth paying.
But if you know the fees and how credit card issuers charge them, you can adjust the way you use your cards and eliminate many from your statement.
Consider this one resource you can use to understand the most common credit card fees, how to avoid them when possible, and how to determine when they may be worth paying.
1. Is it Worth the Credit Card Annual Fee?
An annual fee is an amount you pay on a yearly basis for the privilege using a particular credit card. Not all cards carry this fee, and it’s easy to find an option that doesn’t charge it.
The most common cards that charge annual fees are:
In other words, cards for people with no or poor credit come with a fee. That protects the card issuer since subprime cardholders and those without credit management experience are more likely to carry balances.
And cards that offer lots of benefits and perks come with a price, usually in the form of an annual fee of anywhere from $49 to hundreds of dollars. But credit card companies can offer deals and promotions that waive that fee for users for the first year. The annual fee can be worth it on rewards cards, depending on the amount of the fee and how much money you can save via rewards and points generated from your normal spending. But when it comes to secured cards, look for no-fee alternatives first. These don’t usually come with any reward, so the fee is just a cost out of your pocket.
2. Is it Worth the Fees for Transferring Balances?
You incur a balance transfer fee when you move a balance from one credit card to another. It’s usually a percentage of the transfer amount, somewhere between 3% to 4%.
That means the higher the balance that you want to transfer, the more you’ll pay via the fee. But if you watch for promotions offered by credit card issuers, you can make the fee worth your while.
Look for offers that provide you with low or no interest on balance transfers for a particular period of time (usually between 6 to 18 months). When you want to take advantage, move your balance over from another card and make a plan to pay off the total before the promotional period expires.
This way, you can pay off your balance with zero interest and save a lot of money on your debt that might otherwise have cost you an additional 10% to 20% or more had you left it on another, high-interest rate card. You need to do the math and see if the interest you save is more than the fee it will cost to transfer the balance. If paying the fee but getting to repay your debt interest-free saves you money, consider doing a balance transfer. But you must have a repayment plan in place before you take action. If you don’t pay your balance off before the promotional, no-interest period ends, you’ll have to pay that interest anyway -- on top of the fee that you paid to move the balance in the first place.
3. Is it Worth the Cash Advance Fees?
Most credit cards come with the ability to withdraw cash against the available balance on your card. A cash advance fee is what is charged anytime these types of transactions are done.
Physically withdrawing money from a bank or ATM is not the only qualifying cash advance transaction. Using your credit card as overdraft protection on a checking account or using a convenience check both count, too.
Most credit card issuers charge a fee between 2% to 5% of the advance amount or $10, whichever is greater. But this fee is only the beginning of the costs incurred for these transactions. Cash advances com with higher interest rates than normal credit card purchases. That interest can compound daily, too. The interest alone is enough reason to avoid this transaction, and the additional fees never make it any more worthwhile! Avoid a cash advance fee by establishing an emergency savings fund. This way that you can withdraw cash when you need it even when your monthly budget doesn’t cover the cost -- without any fees, penalties, or interest owed.
4. Is it Worth the Credit Card Fees on Finance Charges?
Ever carried a credit card balance from one month to another? You might have noticed the words “finance charge” on your monthly statement.
A finance charge is a fancy way to say the monthly interest fee added to your account. That happens when you don’t pay your entire balance in full by the due date.
Credit cards are revolving lines of credit that calculate fees and charges based on periods of time called billing cycles. These time periods typically last between 24 to 29 days, with most finance charges added to your balance on the last day of the cycle.
That means that if you started the billing cycle with an outstanding balance, or completed a transaction that doesn’t receive a grace period (like a cash advance), you can expect to receive a finance charge in your upcoming statement.
The amount charged will vary based on your balance, interest rate, and the credit card issuers method of calculating finance charges. This is one credit card fee that is hardly ever worth it! It’s too easy to avoid by:
- Not spending more than you can afford to repay
- Only charging what you planned to purchase to your card
- Paying off your balances in full and on time each month before your statement is due
When you need to carry a balance, make sure you minimize that finance charge by putting the charge on the lowest-interest credit card you can qualify for. That will lessen the amount you pay in interest.
5. Is it Worth the Foreign Transaction Fees?
A foreign transaction fee hits when you make a purchase that requires conversion to a foreign currency. Note that this fee can be charged regardless of your physical location -- which means you could incur this fee if you do online shopping with brands based overseas.
The fee is usually 1% to 3% on purchases made outside of the country the card was issued in. There are too many credit cards that don’t include this fee to make it worth paying by using a card that does. Most travel rewards cards will waive this particular fee and save you a little money on your travels in the process.
6. Is it Worth the Late Payment Fees?
Missed your bill’s due date? There’s a fee for that. And it can be anywhere from $25 to $40 depending on how often you’ve been late in the past.
Some cards are more understanding than others. The Discover it credit card and Citi Simplicity card will waive your late fee the first time you miss a due date. But you need to pay up if it happens again. This is another fee that’s absolutely not worth it! There are too many easy solutions to put into place to prevent a late fee from hitting your statement. You can set calendar reminders for yourself, so you always pay your bill on time. Or you could set up auto-pay to make sure you pay when your bill is due.
Which Credit Card Fees Are Worth It?
Smart credit card management and good financial habits will help you avoid many of these credit card fees. You don’t need to worry about paying the penalty if you make payments on time and in full, and don’t carry balances on your account.
But in the case of annual fees or balance transfer fees, using the card may not allow you to get out of the charge. That doesn’t mean you should automatically look for another option. Instead, do the math. The best way to determine if a fee is worth it for you is to look at the relationship between how much the fee costs you, versus how much the rewards, perks, or benefits can save you. Credit card fees that cost a little now to save you big in the future may be worth paying.