9 Common Credit Card Fees And How To Avoid Them

Credit card fees are any set fees associated with your particular credit card. This is not the same as interest fees, which are only charged when you carry a balance. Typical credit card fees include an annual fee for card ownership, a balance transfer fee for transferring another debt to your card and foreign transaction fees for making an international purchase.

Credit card fees are the responsibility of the cardholder. Credit card interchange fees, sometimes called “swipe fees,” are typically what the merchant who accepts your card as payment is charged by the processing network. In the few seconds between tapping, swiping or entering your card information at checkout, there’s a back-and-forth exchange between your credit card issuer, a processing network and the merchant’s bank. Each party takes a cut of the sale price of your item in order to facilitate the transaction between you, as the buyer making a payment with a card, and the merchant receiving the payment in their bank.

In Canada, the merchant has the option to pass on the cost of these interchange fees to the consumer, too. Merchants who decide to pass these fees on to their customers have to give them 30 days notice and have to clearly let their customers know at the time of purchase that the fee is being charged. The fee itself is capped at 2.4%, too.

There are several different types of fees associated with owning a credit card. These include: Annual ownership costs, finance charges for carrying a balance, foreign transaction fees for making a international purchase, balance transfer fees for shifting debt to another credit card, cash advance fees for taking cash out as a charge to your credit card, late fees for when you miss or skip a payment, over limit fees for charging above your credit limit and returned payment fees for payments made with insufficient funds.

Here are nine of the most common credit card fees and how to avoid them.

Think of an annual fee like any other membership privilege. A credit card essentially gives you the right to buy something now and pay for it later. That’s because unlike cash or a debit card, a credit card allows you to revolve a balance, paying your purchase off over time. Of course, if you choose to carry a balance, in most cases you’ll also have to pay interest charges.

Some cards will also grant you perks like elevated rewards rates, extended warranty protections or airport lounge access. If you use these extras, it can sometimes be worth more than the price you’ll pay annually to own the card.

When considering any card with an annual fee, the main question to ask yourself is: Are the rewards or other perks that come with the card worth the cost of ownership? It may seem appealing to own a card that grants you free access to just about any swanky airport lounge you can think of, but if you fly just once a year, it’s likely cheaper to spring for a day pass to that lounge and own a different kind of card.

How to Avoid Annual Fees

The easiest way to guarantee you won’t have to pay an annual fee is to choose a card without one. There are plenty of options available and some even come with the type of perks you’d expect to see on a card with an annual fee, like rental car insurance coverage.

Another Option

That said, don’t write off a credit card just because it has an annual fee. For some, it’s possible to choose a card that earns elevated rewards in the categories where you spend the most where the increased earnings can outweigh the cost of the annual fee. Similarly, the additional perks offered by credit cards can be worth the annual fee, as long as you use them.

In exchange for the right to carry a balance on a credit card, issuers charge you interest, also referred to as annual percentage rate (APR). How your credit card’s APR is calculated is based on several factors including the interest rate range offered on that particular card and your creditworthiness.

How to Avoid Finance Charges

The easiest way to avoid finance charges is to pay your balance in full and on time every month. However, in Canada, federally regulated financial institutions must provide a 21-day grace period (minimum). The grace period is the span of time between the end of your billing cycle and when the payment is due on your balance (you can find the date on your credit card statement).

However, the grace period doesn’t apply to cash advances, cash-like transactions and balance transfers.

Another Option

If you have a big purchase coming up that you can’t pay off all at once, a card offering a 0% APR on purchases can function like an interest-free loan, giving you some breathing room to tackle a balance. Introductory 0% APR offers often last for 12 to 18 months. Keep in mind your card’s standard interest rate will apply after the introductory period is over.

Some credit cards charge a foreign transaction fee when you make a purchase in a foreign currency, such as when you’re travelling abroad or making a purchase online from another country. This fee is typically anywhere from 1% to 3% of the amount you’re spending, but it usually hover around 2.5% on credit cards in Canada.

How to Avoid Foreign Transaction Fees

Choose a credit card without any foreign transaction charges. There are a handful of travel credit cards on the market that will skip this fee entirely. For instance, the Scotiabank Gold American Express Card has no foreign exchange fees, includes comprehensive travel insurance and earns Scene+ points, too.

Sometimes you can save money by shifting high-interest debt to a card with a low or 0% APR. When you transfer a balance from one card to another, you’ll typically be charged a balance transfer fee of 1% to 5% of the amount being transferred. This will add more to your existing debt, so it’s worth doing the math to make sure you’re going to be saving money overall.

How To Avoid Balance Transfer Fees

Most balance transfer cards charge a balance transfer fee, so choose a card with the best combination of a low balance transfer fee and the length of time at 0% you think you need to pay off your debt.

If you use your credit card to withdraw cash at an ATM against your credit limit, you’ll likely be charged a cash advance fee. This can be either a flat fee for each withdrawal, a percentage of the amount you’re withdrawing or both.

You’ll also be charged interest on your cash advance, often at a higher rate than the standard purchase APR on your credit card.  To add insult to injury, the ATM where you’re making the withdrawal may charge you as well.

How to Avoid Cash Advance Fees

Taking out a cash advance against your credit card is an extremely expensive way to get money. Consider other options to get cash like opening a line of credit, which can be less expensive, or borrowing from family or friends.

If you miss making at least the minimum payment on your credit card by the due date, you could be subject to a late fee. Not all cards will charge you for a late or missed payment, but if you have a card that does, it can add an extra sum to your balance. If you have late or missed payments, your credit score will likely be impacted.

Even if your credit card doesn’t explicitly charge a late fee for a late or missed payment, some cards will charge you a penalty APR, which is typically higher than your card’s current variable APR. This penalty APR may last for a specified number of months until you’ve made consistent on-time payments or indefinitely. The penalty APR will make any debt you carry on your card even more expensive and can potentially cost you even more than a late fee would.

How to Avoid Late Fees

You can pay your bill online so there’s no mail delay or set up automatic payments so that being late is never an issue.

Another Option

If you are hit with a late fee, pay the overdue amount immediately and call the issuer to see if you can negotiate a fee waiver.

If you go over your limit on your credit card, you may have to pay an over limit fee, usually in the $25 to $30 range.

How to Avoid Over Limit Fees

Know that there are some situations where you can’t be charged an over limit fee. For instance,  if a merchant puts a temporary hold on your credit card that goes over the credit limit, like if you spend $90 left on your card, you buy $20 worth of gas, but the merchant places a $100 temporary hold on your account that pushes you over the limit. In this case, your financial institution can’t charge you the over limit fee, according to the government of Canada’s website.

What to do if You’re About to Go Over Your Limit

If you’re closing in on your credit card limit, and need to use it before you can make a payment, ask your provider to increase your limit. You can also ask them to stop any transactions that will go over the limit.

You may get charged a fee to handle a payment that is dishonoured, or that bounces back. This can be if you make a payment by credit card cheque and the cheque is returned because of non-sufficient funds. It can also occure if you make your payment by pre-authourized debit and there’s not enough funds to cover it or if you use a credit card cheque for a cash advance and go over your limit.

How to Avoid Dishonoured Payment Fees

Having a balanced budget can help you make sure you have enough money in your account to cover the payment to your credit card. Keep in mind any outstanding transactions that may not have cleared yet so you don’t accidentally get hit with a fee from the issuer. Be aware that sometimes your bank will also charge you for insufficient funds if your payment is returned.

Another Option

Sign up for overdraft protection on your bank account. If you have money in your savings account, consider having the two accounts linked so if you’re overextended on your checking account, you might be able to cover the payment from your savings account.

Credit cards, like any personal item, can get damaged or lost through no fault of your own. Accidents happen and if your credit card is lost or severely damaged you’ll need a replacement. Most credit card companies will issue you a one-time replacement free-of-charge as a courtesy. But if you need it in a rush, you may be charged a replacement fee or expedited shipping fee. Credit card companies will often charge extra fees to have a new card replaced overnight or issued to you outside of Canada.

How to Avoid Card Replacement Fees

If you know your physical card is in a safe spot, see if you can upload your card to a mobile wallet and use the account that way. If you’re planning to travel, have a backup method of payment (or two) so you don’t need to shell out for any extra rush fees for a replacement card.

Another Option

When you contact your issuer, ask them if they’ll waive any card replacement fees. If it’s simply a matter of having a damaged card and they don’t have to cancel your account, they might agree to waive any card replacement costs.

Credit cards are a tool and, like any other tools, need to be used with caution. By avoiding hidden fees, you can reap the benefits of credit cards without having to navigate the pitfalls.