Don’t let these 6 credit card fees catch you off guard

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Credit cards offer incredible convenience and can be valuable financial tools. But they often come with various fees that can add up quickly if you're not careful. Understanding these fees is crucial for using your credit cards responsibly and avoiding unnecessary charges.

Here are the six most common fees you’ll face when using your credit card, and tips for how to avoid them. 

1. Annual fees

Annual fees are what some credit card issuers charge you just for having one of their credit cards. Typically, you’ll find annual fees on rewards credit cards that come with perks like dining credits or travel perks. Some secured credit cards, which require a cash deposit, may also charge annual fees.

Annual fees are typically charged once per year, often on your account anniversary. Some cards may waive the annual fee for the first year as an introductory offer.

“Annual fees are very common, and they're not necessarily bad if you're getting a lot of value from a card,” says Louis DeNicola, a consumer credit expert and writer. “But they're also easy to avoid if you don't want to pay an annual fee.”

Many credit cards don’t charge an annual fee — and many offer solid rewards and other perks. If you currently pay an annual fee, you could consider downgrading to a card with a lower or no annual fee or cancel the card if the fee outweighs the benefits. 

How do you know if paying an annual fee is worth it? If the value you get from a card's rewards and benefits exceeds the annual fee, it may be worth paying. For example, a premium travel card may be worth it if the value of airport lounge access, Global Entry application credit, and free travel credits you get surpasses what you’ll pay in annual fees. 

2. Interest fees

Interest charges apply when you carry a balance on your credit card from one month to the next. Most cards offer a grace period (typically 25-30 days) during which you can pay off your balance in full to avoid interest. 

If you don't pay the full balance by the due date, you'll be charged interest based on your card's APR (annual percentage rate). Credit card interest is typically compounded daily, adding up quickly.

To minimize interest fees, pay your balance in full each month, or at least pay more than the minimum due. If you already carry a balance, consider transferring to a card with a lower or 0% introductory APR.

“It's definitely possible to pay more in interest than the amount you borrowed,” says DeNicola. “Your statement will show you how much you'll pay and how long it will take to pay off your balance if you make minimum payments, and that assumes you don't make any new purchases.” 

Interest fees don't directly affect your credit score, but carrying high balances can increase your credit utilization ratio, which can lower your score.

3. Late payment fees 

If you fail to make at least your minimum payment by the due date, you may be charged a late payment fee. There's usually no grace period for late payments. Some issuers may impose a penalty APR (a higher interest rate) after a late payment.

Earlier this year, the Consumer Financial Protection Bureau (CFPB) implemented a rule lowering the typical late fee to $8 for certain credit card issuers. The amount cannot be increased to adjust for inflation. 

Though the monetary cost may be lower, the cost to your credit score may not be. Payment history is the most important factor affecting your credit score, and late payments can significantly damage your credit, especially if they're 30 or more days past due. Late payments can also stay on your credit report for up to seven years.

To avoid late fees and protect your credit, set up automatic payments or reminders to ensure you pay on time. If you miss a payment, contact your issuer immediately and request a one-time fee waiver.

Some cards don’t charge late fees, including the Upgrade Cash Rewards Visa®, Petal® 2 “Cash Back, No Fees” Visa® Credit Card, and the Citi Simplicity® Card.

4. Balance transfer fees

Balance transfer fees are charged when you move a balance from one credit card to another, usually to take advantage of a lower interest rate. The fee is typically a percentage of the amount transferred (often 3-5%) or a flat fee, whichever is greater.

Despite the fee, a balance transfer may still be worth it. 

“A balance transfer fee is worth it if the individual can pay off the amount transferred at a lower interest rate than they currently have,” says Rahkim Sabree, Accredited Financial Counselor. 

Calculate how much you'll save on interest and compare that to the balance transfer fee to decide if it's worthwhile. Some cards may offer no-fee transfers as an introductory promotion.

For example, let’s say you have a $2,000 balance on a credit card with an interest rate of 20%. If you transfer that balance to a 0% APR card with a 3% balance transfer fee, you’ll pay $60 in balance transfer fees. 

But, if you can pay off your balance during the 0% APR period, you’d save almost $1,200 in interest (assuming you were paying just the minimum payment before). In this example, paying the balance transfer fee may be worthwhile. 

5. Cash advance fees

Cash advance fees apply when you use your credit card to get cash, like from an ATM. The fee is usually a percentage of the cash advance amount, with a minimum dollar charge (5% of $10, whichever is greater). 

Like late payments, there’s typically no grace period for these transactions. Cash advances also typically start accruing interest immediately faster than regular purchases, sometimes as high as 29.99%. 

The best way to avoid cash advance fees is not to take them. Instead, consider a short-term personal loan, borrowing from friends or family, or using your checking account's overdraft protection if available.

6. Foreign transaction fees

Foreign transaction fees are charges you incur when you use your credit card to purchase in a foreign country or use a foreign currency. For example, if you’re on vacation in Paris and use your credit card to pay for lunch, you could be charged a foreign transaction fee. Typically, foreign transactions are a percentage of your purchase or transaction amount. So if your credit card charges a 3% foreign transaction fee and you make the equivalent of a $150 purchase abroad, you’ll pay $4.50.

If you use your credit card outside of the United States, you may be charged a foreign transaction fee, typically around 3% of the purchase amount. This fee applies whether your transaction is in a foreign currency or not.

Foreign transaction fees also apply to purchases made outside the country, including online purchases from foreign merchants.

While foreign transaction fees are small, they can quickly add up. For example, if you spent $3,000 on a trip to Europe using a card that charges these fees, you’d pay $90. 

Luckily, many credit cards, including most travel cards, don’t charge these fees. You can also use local currency instead of your credit card when traveling abroad. Popular cards that don’t charge foreign transaction fees include the Chase Sapphire Preferred® Card, Capital One SavorOne Cash Rewards Credit Card, and the Citi Strata Premier℠ Card. 

Other potential credit card fees to watch out for 

Beyond the common fees discussed above, be aware of these less-frequent charges:

• Over-the-limit fees: These fees apply if you exceed your credit limit, but they're rare since most issuers don't allow over-limit transactions. 
• Returned payment fees: Say you send a check to your credit card company or initiate a bank transfer to pay your bill. The credit card company may charge you a returned payment fee if you don’t have the funds in your bank account. You’ll also need to pay the balance you owe, or you could get charged interest or slapped with late fees. 
• Card replacement fees: Some card companies may charge you to replace your credit card if you request a new one too often. However, most issuers will send you a replacement card for free if your card is lost or stolen or the card chip or magnetic stripe has worn out. 
• Inactivity or dormancy fees: An issuer may charge a fee if you don't use your card for an extended period (usually 12+ months). However, this is rare. 

How to minimize credit card fees 

Proactively managing your credit card use is the best way to avoid fees. Some strategies include:

1. Choose the right card: Select cards with low or no annual fees, no foreign transaction fees, and other features that fit your spending habits and needs. 
2. Pay your balance on time and in full: Avoid interest and late fees by paying your full balance by the due date each month.
3. Avoid cash advances and balance transfers: Unless absolutely necessary, avoid these transactions to avoid extra fees and higher interest rates.
4. Monitor your account: Regularly review your statements to catch any unexpected fees and address them quickly.
5. Negotiate with your issuer: “If you've been charged a credit card fee, it can be worth reaching out to the creditor to see if the fee can be refunded, especially if you are experiencing financial hardship,” DeNicola says. Have your account history and competitor offers ready to make your case. 

The bottom line

Avoiding credit card fees is possible if you plan carefully. But in some cases, paying these charges may be worth it, especially if it will enhance your life, like helping you access travel perks and earning valuable rewards on your daily spending. 

Remember, if you do incur a fee, it never hurts to reach out to your issuer and ask for a waiver, especially if it's a first-time occurrence. With a little effort, you can make your cards work for you, not against you.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.