The Most Common Credit Card Fees and How to Avoid Them

Credit cards can be valuable financial tools if used responsibly, but that doesn’t mean there aren’t pitfalls to be aware of. One of the biggest is credit card debt — a consequence you’ll face if you charge more on your card than you can afford to pay back.

Still, there are other pitfalls to be aware of when we use credit cards — namely the different fees you might get stuck paying. If your goal is to use credit cards to your advantage, shelling out for extra fees – especially ones you could avoid – shouldn’t be part of the plan, so you’ll want to understand the following fees and how to avoid or minimize them.

#1: Annual fees

Annual fees are charged by some credit cards, but not all of them. Most cards that charge annual fees do so because they provide some sort of additional benefit (e.g., travel rewards) or because your credit history indicates you’re a risky borrower and they want to cover their bases.

Annual fees can range from as low as $39 per year up to $550 per year for the top travel credit cards. These fees may seem unnecessary – especially when many of the best cash-back rewards cards don’t charge an annual fee — but there are definitely instances where paying an annual fee can be worth it.

If you have to pay an annual fee to get a credit card so you can build credit for the first time, for example, paying the fee could be worth it later on. And paying a big fee on a travel credit card can also be worth it when the card’s benefits are considerably more valuable than the fee itself, or if the card offers perks or rewards you couldn’t earn otherwise.

Related: Does It Make Sense to Pay an Annual Fee?

#2: Interest charges

We all know that credit card debt can be costly, and the bulk of that cost is measured in credit card interest charges.

Whenever you carry a balance on your credit card from one month to the next, the credit card issuer charges interest on your balance. Credit card interest accrues daily, and interest charged by credit cards can inch toward 25% APR — even if you have good credit. That means if it takes you a year to pay off a $1,000 purchase, you might actually end up paying more like $1,133 for the item, according to this calculator – a $133 “fee.”

If you use credit cards, your best bet is to pay off your balance in full each month to avoid interest altogether. At the very least, sign up for a low interest credit card so you can minimize interest charges when you can’t afford to pay your balance in full.

Related: Why We Pay Our Credit Card Bills More Than Once a Month

#3: Balance transfer fees

Speaking of carrying a balance, many people choose to transfer their unwieldy, high-interest credit card debts using a balance transfer credit cards to save money and pay off debt faster. These cards typically offer 0% APR for anywhere from six to 21 months, making it easier for cardholders to pay off debt — since every dollar they pay goes toward the principal of the balance during that promotional period.

While these cards can be very helpful when it comes to paying off debt, it’s important to note that many charge a balance transfer fee of 3% to 5% of the transferred balance. What this means is, you may have to pay $30 to $50 for every thousand dollars of debt you transfer to a balance transfer card.

While these fees can be worth it, since you won’t have to pay interest for a while — assuming you can pay off the entire balance during the 0% APR introductory period, that 3% fee is preferable to a 25% APR — it’s important to weigh the pros and cons of paying a balance transfer fee.

Also keep in mind that some cards don’t charge balance transfer fees. Make sure to compare balance transfer cards to find the right option for your needs.

Related: Using a Balance Transfer Card to Pay Off Holiday Debt

#4: Cash advance fees

Most credit cards make it possible for you to borrow against your card’s credit limit and receive cash. This act is called a cash advance, and it may seem pretty convenient if you don’t know the fees involved.

For starters, most cards charge a cash advance fee of 2% to 5% of the amount borrowed. Not only that, but you may have to pay ATM fees upfront, along with a higher interest rate on cash advances versus the rate you normally pay on purchases. Last but not at all least, cash advances don’t come with a grace period, meaning interest will begin accruing from day one after you take out the money.

While a cash advance can help you get access to money in an emergency, it’s an especially costly way to get cash in your hands. You’re much better off drawing from savings if you need cash for an emergency – and you can rest assured that an emergency will happen at some point, so get started building an emergency fund as soon as you can.

Related: Need Cash Quick? 19 Legitimate Ways to Get Money Fast

#5: Foreign transaction fees

Some credit cards charge a foreign transaction fee each time you use your card outside the United States. These foreign transaction fees can range from 1% to 5% of each purchase you make.

Some cards — especially the better travel cards — don’t charge this fee at all, however. So it makes sense to shop around for a new credit card that doesn’t charge foreign transaction fees if you plan to travel abroad.

Related: Best Credit Cards With No Foreign Transaction Fee

#6: Late fees

If you pay your credit card bill late, you can expect to pay a late fee in addition to your balance and any interest charges that have accrued. These fees can vary from card to card, so make sure you know your card’s late fee before you sign up. Typically, late fees are in the $25 to $39 range.

Obviously, your best bet to avoid these fees is paying your bill on time every month. (A late payment can cost you in other ways, too, since it will probably put a dent in your credit.) You can consider setting up your account so it’s paid automatically through your bank, or you can mark your payment due date on your calendar each month. Either way, make sure you pay your bill on time to avoid this added charge.

Related: Eight Money Mistakes the Middle Class Keeps Making

#7: Over-the-limit fee

Credit cards come with a credit limit that can vary depending on your credit score and how much open credit you have already. However, that doesn’t mean they will deny purchases you make over that amount. The reality is, many credit cards will let you keep making purchases, and then charge you an over-the-limit fee.

As a cardholder, you can pay the over-the-limit fee so purchases aren’t rejected at the register. But you should really keep your balance well below your credit limit at all times to avoid paying this fee. (What’s more, if you use a lot of your available credit, it hurts your credit score.)

If you pay off your balance religiously each month, but still find yourself bumping up against your credit limit, it might be worth asking your card issuer for a credit limit increase.

But if you’re someone who has trouble staying under your credit card’s limit because you’re carrying a balance from month to month, you may want to think long and hard about your use of credit cards to begin with. You might have a spending problem that could be solved using a monthly budget, but you may need to stop using credit cards altogether for a while to keep your debt problem from getting worse.

Related: You Can Improve This Part of Your Credit Score Almost Immediately

#8: Returned payment fee

Imagine you pay your credit card bill but your check is returned for insufficient funds. In that case, you can expect to pay a returned payment fee in addition to interest charges and late fees on your credit card balance if it’s past due.

Returned payment fees vary by card but can cost up to $35. The best way to avoid this fee is to make sure you have enough money in your account before you write a check for your credit card bill or pay your bill online.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.