Guide To Credit Card Fees
The last six to twelve months has seen the credit card market inundated with new products, with providers all vying for their own share of the profits. Low interest rates, zero balance transfer rates and other tempting offers have seen unsuspecting consumers jump at the opportunity to save while they spend.
Many of these avid shoppers have been rudely awoken when confronted with the true cost of their attractive new piece of plastic. Hidden fees and conditions can mean potential financial hardship for the unwary customer and, now more than ever, it is essential that you do your sums when applying for a new credit card. Read all the fine print and consider the card package as a whole - don't be blinded by the low interest rate or balance transfer deal offered.
Hidden Fee To Be Wary Of
Ongoing Interest Rates
Many cards tempt their customers with low or 0% balance transfer interest rates, but it is essential to consider the ongoing rate of interest the card reverts back to after the introductory period has ended.
Daniel had a debt of $5000 accumulated on a number of credit cards, and decided to transfer the balance to a new card with a 0% balance transfer for 6 months. However after six months he still hadn’t made much of an indent in his debt – it was down to $4000 – and the new card reverted to an interest rate of 18.75%, 5% higher than his original cards. This left him in a worse position than he was before he transferred the debt.
Annual And Application Fees
Low interest rates can be useful in keeping debts to a minimum, however many providers recoup any losses they may suffer by charging expensive annual card fees. Standard credit cards with standard interest rates often have no, or very low, annual and application fees. Low interest cards can be the opposite with annual fees of over one hundred dollars.
Annette's new credit card boasted an attractive interest rate of 10.75% on purchases and a competitive 14.25% on cash advances. However, after the end of her first year of owning the card, Annette was shocked to find an interest-bearing annual charge on her statement of $150.
Annette decided to change to another card offered by the same provider, one without an annual fee. Unfortunately, when she transferred her debt to this other card and closed her original account, the annual fee charged for her first card was not waived and still had to be paid. In addition, her new card also required an application fee to be paid.
Reward Points Programs
Many cards offering benefits in the form of points earned for each dollar spent are also often more expensive overall. Application fees, annual fees and higher interest rates must all be taken into account. Sometimes the credit card rewards programs themselves will have membership fees attached – check the fine print before you sign up.
Paying Off Your Debt
Always bear in mind that the oldest purchase is the first to be paid off so, even in the case of cards offering interest-free days, if there is an existing debt any repayments will be used to pay off this debt first. Don't assume that by making a purchase and repaying it before your interest-free days are up, you will avoid costly interest charges.
Many cards have extremely high interest rates for cash advances. Even if your card has a very competitive rate for purchases, always make sure you are aware of the cash advance rate which can be more than 5% higher than the purchase rate. Many also charge a service fee for making a cash advance, in addition to an ATM fee if you withdraw the money from the hole in the wall.
Charges For Foreign Purchases
Almost all credit cards have hidden costs when making purchases in other currencies. Before you take your card on holiday with you, make sure you factor these sometimes hefty, additional charges into your budget.
Additional Card Holders
Some low rate credit cards have conditions attached regarding how many additional card holders you can have on the same account. Many will also charge a fee for each additional cardholder.
Late Payment Fees
Late fees have doubled in the last ten years and can be a substantial addition to any credit card statement. Make sure you are aware of the late fees for your card and always try to pay your bill on time. As well as avoiding the extra financial burden you can also avoid the potential black-mark on your credit history.