All About Credit Card Charges
How Can I Avoid Credit Card Charges?
Credit cards can be an extremely convenient way of managing your finances. They are a safer alternative to carrying cash, they can help build your credit rating and – if you know what you’re doing – you can take advantage of interest-free periods. But it’s essential to be aware of the different fees and charges that you could fall foul of – and, more importantly, how you can avoid them.
So, exactly what fees are associated with credit cards?
Interest Rate
All credit cards charge interest on an outstanding balance, and the amount that is charged is based on a percentage of your balance – otherwise known as the APR (annual percentage rate). Interest is calculated daily and charged monthly, and rates can be different for different types of balance. For example, you’ll usually pay a higher interest rate on a cash advance than you will for a purchase made on your credit card.
Can I avoid it?
If you pay your balance in full by the due date on your statement, you won’t be charged interest. If you do carry a balance, pay the maximum amount you can afford each month to reduce the interest you’ll pay.
You could also consider transferring your balance to a card with a 0% promotional interest rate to give you time to pay off the debt without interest being added. Be aware, though, that there will be a one-off transfer fee for a balance transfer, usually somewhere between 1 and 3% of the transfer amount.
Annual Fee
Some credit cards charge an annual fee and, as a general rule, the more perks a card offers (for example some cards come with travel insurance or a cashback scheme) the higher its annual fee is likely to be. Some card providers will waive the first year’s fee for new customers.
Can I avoid it?
Yes, if you opt for a card with no annual fee. If you want your credit card to come with some perks though, the likelihood is you’ll have to accept a fee, so it’s all about weighing up the cost against the benefits.
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Transaction Fees While Abroad
If you use your credit card abroad you’ll usually see some transaction fees on your next statement. The norm for this fee is somewhere between 1 and 3.5% of the transaction value.
Can I avoid it?
There are credit cards out there that don’t charge transaction fees for overseas purchases. So if you travel regularly or are planning to spend a lot on a forthcoming trip, it’s worth shopping around or considering a prepaid travel card.
Cash Advance Fees
Using a credit card to withdraw cash attracts a much higher interest rate than purchases made on the card. You’ll also be charged a transaction fee (usually around 3%) and you’ll start paying interest from the time you make the withdrawal (as opposed to purchases, for which you benefit from an interest-free period).
Can I avoid it?
The only way to avoid costly fees for withdrawing cash on a credit card is never to use your credit card for withdrawing cash. Be aware that the fees also apply when you buy foreign currency or make transactions in a casino.
Late Payment/Over-Limit Fee
If your minimum monthly payment is late or returned by your bank, you will be charged a fee and will continue to incur interest on the amount outstanding. Equally, if you go over your agreed credit limit you will be penalised.
Can I avoid them?
Keeping a close eye on your credit card activity is the best way to avoid these charges. If you carry a balance, consider setting up a direct debit so that the minimum payment is always collected on time (and you can always make additional payments at any time if you want to clear more of your debt). Regularly check your balance to make sure you don’t accidentally go over your credit limit and incur a fee. If you need more credit, talk to your card provider about increasing your credit limit before you make further transactions.
There are many other miscellaneous fees that may or may not be charged by your credit card provider. Make sure you’re aware of all the fees you may be liable for, so that you can enjoy the benefits of your credit card without racking up charges.