How Can I Avoid Credit Card Fees?

When utilising or accepting credit card payments, cardholders are usually subject to fees levied by credit card issuers, payment networks, or merchants. The best and most important method to handle your credit card properly is to be aware of the charges associated with it. Credit card fees can vary significantly based on the card issuer, the type of card, spending limit, and the type of service. Credit card fees and debt can have a negative impact on personal finances hence it is crucial to manage your card responsibly.

Types of Credit Card Charges

There are many different kinds of credit card fees; the details are briefly discussed below.

Annual Charges: These fees are typically associated with the cards on a yearly basis which comes with higher features and benefits. While some credit cards provide lifetime free annual charges benefits they lack in featuring premium benefits and perks.

Interest Fees: Based on the card's Annual Percentage Rate (APR), credit card issuers impose interest charges in case you default and make the credit card payment after the due date. While some cards offer interest-free periods ranging from 20 to 50 days in case of default credit card interest rates range up to 3.4% per month.

Late Payment Charges: These charges are typically imposed and are associated with interest fees if you default on your credit card bill payment and fail to pay your monthly bill before the due date.

Foreign Transaction Fees: Cardholders who make transactions with foreign currencies are subject to foreign transaction fees. Every time you execute a transaction overseas, you will be charged a foreign transaction mark-up fee, which ranges from 1% to 3% of the total amount.

Balance Transfer Fees: Balance transfer fees, which usually range from 1% to 5% of the transferred amount, are levied when credit cardholders transfer their outstanding balance from one credit card to another in an effort to lower their debt load.

Overlimit Fees: Every credit card has a pre-determined monthly spending limit that varies from one to the next. Any transactions made using a credit card after the limit has been used up completely or entirely result in overlimit charges, or in some situations, the card issuer may reject the transaction.

Cash Advance Fees: When a credit cardholder uses the option to instantly withdraw cash using the card, they are charged a fee ranging from 2.5% to 3% of the transaction amount, with a minimum of Rs 250 to Rs 500. The cash advance fee details can be tracked in the billing statement.

How To Avoid Credit Card Charges?

As per Mayank Bhatnagar, Co-founder and COO, FinEdge, to avoid credit card fees, it is crucial to manage your card responsibly. Start by ensuring you pay on time. Late payments often incur hefty fees and negatively impact your credit score. Set up reminders or automatic payments to avoid missing due dates. Paying the full monthly balance can also prevent interest charges, keeping your credit card usage cost-effective. Revolving credit, paying the minimum due amount or part payment would attract interest charges on the entire outstanding amount. For example: if for an outstanding amount of Rs. 10,000/- you make a part payment of Rs. 2,000/-, you would still be charged interest on the entire outstanding of Rs. 10,000/- unless you clear the dues in full.

"Lastly, be aware of additional fees such as annual fees, foreign transaction fees or cash advance fees. Choose a credit card that matches your spending habits, and consider one with no annual fee if you're looking to minimize costs. Understanding the terms and conditions of your card, and using it within your means are ways to avoid unnecessary fees," Mayank Bhatnagar said.

"From a personal finance perspective, credit card fees and debt can be very detrimental. The best habit to inculcate is to save first and spend later. Credit cards encourage a person to spend first and pay later which is the exact inverse of what is ideal for you," he further stated.

"Make sure you plan the full repayment of your credit cards before you buy anything. This means using your card wisely and only for purchases you can afford to pay off. Avoid overspending, which can lead to carrying a balance and accruing interest. Monitor your spending regularly to ensure it aligns with your budget," Mayank Bhatnagar recommended.