8 Hidden Credit Card Fees & How You Can Avoid Them
Over the years, credit cards have taken a beating on its reputation and it is almost synonymous with debts. We don’t have to be a slave to this plastic card, which is meant to make our lives easier and more convenient.
Although credit card fees are common, they are not completely unavoidable. The key to successfully utilize your credit card as a convenient payment method without the additional fees is to understand what the fees are and how they work.
To help you understand that and ultimately, keep those pesky hidden charges from accruing, here’s a quick run-down of credit card fees that you might encounter!
1. Annual fee
This is self-explanatory. It’s a fee that you pay annually for using your credit card. Just like any other fees, no one likes to pay this. What many don’t know is that credit card annual fees are not applicable for every card. Annual fees are more common on travel and rewards credit cards because they tend to offer more prestigious signup bonuses and rewards than other credit cards.
Annuals fees are only worth it if you know how to maximize the privilege that comes with your credit card. How often will you be using your card and how much rewards or perks you can get in a year’s time with your credit card usage? Do the math and see if the rewards or perks that you’ll be getting will outweigh your annual fee, even by a small margin.
If you’re shopping for a credit card that can give the best of both worlds – perks and benefits of a premium card without having to pay for the annual fee – it’s worth to keep an eye on those credit card promotions that banks throw around every now and then. Some banks will offer better sign up bonuses while some will waive the annual fees for life.
If you’re looking to skip those annual fees, of course, the obvious choice would be to get a card that offers a lifetime annual fee waiver. No frills credit cards typically don’t charge annual fees, but they also don’t offer perks that most premium credit cards have by default. Alternatively, you can shop around for premium credit cards that will waive their annual fees if you fulfill certain conditions, such as a minimum number of transactions per year. However, the offer is typically available for a limited period of time only, so you won’t find them often.
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2. Finance charge or fee
This fee is charged when cardholders do not pay off their credit card balance. The longer you take to completely pay off your balance, the higher the finance charge will be. In other words, the finance charge is the interest that you incur for not paying promptly.
A credit card is a revolving credit, hence, its interest or finance charges will snowball over time. Here’s how it works based on a 3.5% interest rate per month:
| Balance | Payment | Interest | |
| Month 1 | ₱11,000 | ₱5,000 | ₱6,000 x 3.5% = ₱6,210 |
| Month 2 | ₱6,210 | ₱3,000 | ₱3,210 x 3.5% = ₱3,322.35 |
| Month 3 | ₱3,322.35 | ₱3,000 | ₱322.35 x 3.5% = ₱333.63 |
The above example assumed that the cardholder does not make any new transactions on the card. If there are new transactions on the card, the more interest you will incur.
If you just can’t avoid carrying a balance, then the goal is to minimize your interest charges by using a low-interest credit card instead of other credit cards like a rewards card. Rewards credit card tend to have higher interest rates, and if you are unable to clear off your balance every month, the interest will overweigh the value of your rewards.
Paying off your balance in full each month is the only way to dodge finance charges. If you purchase a big-ticket item which you can’t pay off in a single payment, call your bank and arrange an installment scheme. However, not all banks offer the luxury of converting purchases into installment plans, hence, another option is to take advantage of installment plans in store.
| Finance charges are fixed fee derived from the principal amount of the purchase. Some stores who offer installment payment may charge the entire finance charge on your credit card on the spot. |
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Best credit card for the savvy spender aiming for better finance management.3. Late payment fee
A late payment fee is charged to the cardholder when the minimum payment is not settled within the due date. Basically, it’s a fee charged on top of the interest or finance charge when cardholders don’t make any payment within the due date at all.
The late payment will be added into the balance, which will snowball according to the interest rate.
Fortunately today, some banks have different credit cards catered for different consumers. Some no-frills credit cards like Citibank’s Simplicity Card don’t penalize cardholders for missing their due date. While such credit card offers flexibility, not paying your credit card debts promptly will still hurt your credit record in banks and incur finance charges.
This is the easiest to avoid. All you need to do is to ensure you pay at least the minimum payment or choose a card that doesn’t charge late fees.
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Get 10% back on interest charges if you pay at least the minimum due on or before the due date.4. Cash advance fee
Cash advance is a means of withdrawing cash from an ATM with a credit card which will be restricted according to your credit limit. This transaction typically imposes a one-time fee and is immediately deducted from your credit limit.
Some banks like HSBC offer a fixed cash advance fee of ₱500 while some charge a 2% to 5% of the amount borrowed.
The cost of doing a cash advance with your credit card doesn’t just end with the cash advance fee. Standard ATM withdrawal fees will also apply, and failure to pay off the entire amount will incur late payment fees and interest charges, as explained in the points above.
Cash advance is never the best source of cash during an emergency. If you want to have a source of funds for your immediate needs, the aim is to build an emergency fund with enough money to cover at least 3 to 12 months’ worth of your household expenses. If it is completely unavoidable, then ensure you are able to pay off the balance completely before the due date.
5. Balance transfer fee
A balance transfer fee is charged when you move debt from one credit card to another. The idea behind a balance transfer plan is to save on interest while paying off your credit card balance.
The typical balance transfer fee is 3% to 5% of the amount transferred. This is a one-time fee, and the facility will spread your debt over a set period of time, with many cards offering 0% interest on balance transfers for a year or more.
Some credit cards don’t charge a fee for balance transfers in certain circumstances. However, they do come with conditions like lesser payment term and/or reaching a certain amount of balance transfer.
For a balance transfer program to be worthwhile, you need to ensure you are able to pay off your balance according to the schedule. Failing to do so will incur the standard interest rate of your credit card.
6. Foreign transaction fee
A foreign transaction fee is a charge added on purchases made outside the issuing country of your credit card (for our case, the Philippines). A fee of up to 3.525% will be imposed on the converted amount which represents the bank’s service fee and assessment fees charged by Visa/MasterCard.
While many cards charge this fee, most travel credit cards do not. If you are a frequent traveler and you fancy shopping overseas with your credit card, you can save money by getting a travel credit card.
A travel credit card like Citi PremierMiles Credit card will not only cut the cost of your overseas shopping expenses but will also reward you more!
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Exchange earned points in over 60 airlines.7. Over-limit fee
An over-limit fee is charged when your card’s balance exceeds your credit limit. Cardholders may opt into the fee to keep transactions from being rejected at the register. Depending on your bank, you could be charged between ₱500 and ₱1,500, no matter the amount you have overcharged your card with.
While credit limits are there for your consumption, maxing it out can hurt your credit health. Generally, a good credit utilization ratio should be 30% or less. Going above it may impact your credit record negatively.
If you do opt in, the simplest way to avoid the fee is to stay well under your credit limit. If you’re constantly on the verge of maxing out your card, the problem lies in your spending habit.
8. Returned payment fee
A returned payment fee is charged when your check to the credit card company bounces or an automatic payment out of your bank account is blocked for insufficient funds. This fee will vary by card, but around ₱1,500 will be charged for every check that is returned or bounced due to the insufficiency of funds, uncollected deposits, stops payment order, closed account, alteration, erasure or deficiency, or for any other reason.
Make sure you have the money in your account before writing that check or clicking that “Pay Bill” button on your credit card’s online portal.
If you don’t want your credit cards to accumulate unwanted debts, other than using it wisely, understanding how the fees work can help you dodge unwanted charges. The secret that not everyone knows about credit cards is that you can usually find a way to avoid many of these credit card fees.
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