A How to-Guide on Avoiding the Most Common Credit Card Fees

April 19, 2018 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

A How to-Guide on Avoiding the Most Common Credit Card Fees

There are few annoyances in this world that compare to unexpected bank fees, and credit card fees are some of the most frustrating. Here’s a not-so-fun fact: The average credit card charges six different types of fees —some cards have as few as one fee, others charges as many as 12. *Takes deep sip of wine.*

While smart use of a credit card may allow you to earn rewards and build a credit history, there can be a sinister side to some credit cards. The average American carries an approximate balance of $6,354 on multiple credit cards . And getting out of credit card debt can be particularly challenging, especially if your credit cards have high interest fees.

Breaking Down the 6 Main Credit Card Fees

Can you name six different types of credit card fees off the top of your head? It’s okay, almost no one can, because it’s pretty crazy that, on average, credit cards ding you in six-plus ways. Still, the best way to sidestep fees is to know what they are. Sounds obvious, but understanding what types of behaviors to avoid is your primary defense in the battle against fees. Here’s a summary of the most common credit card fees, and a few tips on how to avoid them.

1. Annual Fees

An annual fee is the yearly price you pay to use a credit card. Not all credit cards have annual fees, but most reward-heavy and premium cards do. It’s not inherently bad to pay an annual fee on a credit card, but it does require busting out a calculator and doing some math. To justify paying an annual credit card fee, you should earn enough in rewards to cover the fee and then some.

To avoid it: Lots of cards have no annual fee or will waive an annual fee in the first year. When choosing a credit card, you’ll want to do some comparison shopping and annual fees should be something you pay close attention to. Ultimately, if you’re going to pay a fee for using a rewards card, you should make sure you’ll be cashing in on rewards you’ll actually use.

2. Late Payment Fees

Late payment fees are pretty self-explanatory. Basically, some banks will ding you if you miss a payment. As of 2017, late payment fees are capped at $38, so that’s about what you’ll pay, until the amount gets adjusted again for inflation.

To avoid it: Make your payments on time by setting a calendar reminder (or two). If you still can’t seem to remember your due date, set up an automatic payment for at least the minimum monthly payment. If you do miss a payment, call your credit card company and ask them to waive the fee. (If you’re a first-time offender, they might be amenable to it.)

3. Cash Advance Fees

When you use a credit card to withdraw cash from a bank or ATM, you will almost always be charged a cash advance fee. Cash advance fees generally range from 2% to 5% of the amount you withdraw or $10, whichever is higher. Though the rate is different per lender, credit card issuers are required to disclose the method they use to calculate your cash advance fee, so it is a good idea to research their method. Remember, the interest rate on a cash advance is likely to be higher than on “normal” credit card purchases, and interest accrues immediately.

Related: Consult our Credit Card Interest Rate Calculator to find out how much interest you are paying on your credit card debt.

To avoid it: Don’t use your credit card like a debit card. If you’re going to take out cash, it should be with a debit card. If you do have to take out a cash advance on your credit card, try to pay it back as soon as possible. And to avoid needing to take out a cash advance in the future, establish a cash emergency fund that’s easily accessible.

4. Balance Transfer Fees

When you transfer a credit card balance to a new card with a lower interest rate, the new credit card issuer may charge you a fee. The fee is usually 3% of the balance being transferred. Balance transfer cards usually offer 0% interest rates to new customers who want to transfer their credit card debt—so charging a fee allows them to make some money on the initial transaction.

This is another fee where the math could work in your favor. If you’re paying off your credit card debt, and you can transfer your debt to a card with 0% interest, that might be worth the small fee. However, that 0% interest deal might only last a certain amount of time—then a higher interest rate kicks in, and if so, make that part of your calculation.

To avoid it: If a balance transfer card would stress you out with its tight timeline before it’s interest rates change, you could instead consider taking out a personal loan to pay off your credit card debt. A personal loan will usually charge a lower interest rate than your credit card, but it will allow you pay off your debt on a timeline that’s right for you.

5. Foreign Transaction Fees

If you use a credit card while traveling outside of the country, you may be charged a foreign transaction fee of around 3%. Once very common, these fees are declining in popularity thanks to the rise of cards with no foreign transaction fees.

To avoid it: Choose a card that doesn’t charge foreign transaction fees. There are lots of options out there, it’s just a matter of shopping around. Airline cards don’t generally have foreign transaction fees, but plenty of other cards have eschewed these fees as well. If you aren’t ready for a new credit card, you may be able to use your debit card to take out cash once you get to your foreign destination without as many fees.

6. Finance Charges for Outstanding Balances

A finance charge includes not only interest but other charges as well, such as financial transaction fees for the cost of borrowing that you can be charged if you don’t pay your balance in full each month. Some folks consider finance charges separate from credit card fees, but it’s the largest expense associated with credit cards.

Simply put, the higher the annual percentage rate (APR) on your credit card, the more you’ll owe if you can’t pay your balance in full. The average APR on credit cards is just over 16% .

To avoid it: Pay off your credit card balance in full each month. If you’re unable to do that, pay as much as you can—every dollar counts.

If you’re currently chipping away at a balance, you may want to consider taking out a personal loan to pay off your credit card. A personal loan won’t have confusing fees and the payback schedule is straightforward.

Using a personal loan to pay off your debt is a particularly good idea if you can lower your rate of interest. Considering the 16% average APR on credit cards, you could save hundreds or thousands on interest if you opted for a loan with a lower interest rate.

Ready to see if a personal loan could get you out of credit card debt, while helping you save money on interest payments? Get a quote for a SoFi personal loan in as little as two minutes.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store
SoFi Android App, Get it on Google Play

TLS 1.2 Encrypted
Equal Housing Lender