Avoiding Credit Card Fees

There are few credit card holders who have escaped the sting of unexpected credit card fees. Some people think the fees are too stiff; others feel a number of the penalty fees are simply unfair.

Make no mistake about it, the banks and card companies are generating substantial income from these fees. In the last financial year, the Reserve Bank of Australia found that bank incomes from credit card fees increased by 12 per cent from the previous year, and by 170 per cent from five years ago.

More tellingly, credit card fees generated from common occurrences like breaching the credit limit, making late payments, and paying for foreign currency transactions rose the fastest in 2007 — 16 per cent growth.

It is well within your control to avoid exception fees and other surcharges on your credit card. There is wide variation on fees among providers and types of card features, so it pays to compare credit cards and use the card that gives you the best advantage. Here are possible steps for avoiding or at least minimising credit card fees.

Be prompt in making payments. You can get slugged by late payment fees even for being just one day late, and fees can range from $10 to $40 (average of about $25-$30). Make sure to pay at least the minimum amount due, not a cent less or you may be imposed fees or lose the interest-free period privilege. To make sure you avoid being late, you can arrange to have direct debits made automatically from your bank account.

Reduce supplementary cards to the number necessary. Few people have heard of subsequent card fees. These are fees for every supplementary card you give out. If you compare credit cards, you’ll find cards that charge only $15 but others as high as $65 per annum. The fee is more likely to be charged if your credit card is linked to a reward program.

Check your annual fee. Cards with rewards programs often have higher annual fees than regular cards. Also, some credit cards do not charge subsequent card fees, but the annual fee to the primary card holder may be higher than usual. In some other cards, the annual fee is waived but the trade-off is that you will have to spend more on the card.

Consider using only one or two cards. This helps you track your payment due dates and balances. You also won’t have to pay more annual fees than necessary.

Minimise using your credit card for cash advances. Cash advances will attract interest immediately on the day you take them, even if your card allows a 55-day interest-free period (this applies only to purchases). In addition, the bank levies a transaction fee for every cash advance. 

Avoid going over your credit limit. Overlimit fees (usually $35) will apply once you exceed your credit limit. You can avoid going over your limit by checking your account balance regularly. There are many electronic ways to do this: through ATMs, phone banking, or online. If you frequently breach your credit limit, it may be advisable to review your circumstances and determine if you should request for a higher ceiling — assuming you have the capacity to pay for it.

When you compare credit cards, it is important to get a favourable interest rate (APR). However, it is equally important for you to have a thorough understanding of fees and other bank charges you may have to pay. This is essential to finding ways to avoid paying too much in credit card fees.

Disclaimer:

No investment advice provided to you.
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You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.