Everyone’s aware that credit card companies and issuers primarily make money by charging interest on the amount you borrow. The specific rate charged can range from an introductory (meaning it expires after set period of time – usually around 6 -12 months) 0% to a you’re-never-paying-off-that-balance 79.99%. But interest rates aren’t the only way the credit card industry makes a profit. Below are additional methods of getting you to part with your hard-earned cash:
1. Late payment fee
Forget to mail in your check? Internet outage and you can’t login to online banking? That’ll be $39 please. The new credit card laws have somewhat cracked down on bogus late fees – ones where your payment was considered late just because the processing center’s mail didn’t come until late afternoon.
2. Cash advance fee
Cash is king. Because of that (or maybe because of the potential profits), credit cards can usually be used at an ATM to make a withdrawal against your line of credit. This is where you get dinged twice. Once for the fee, usually around 5% of the amount you borrow. Plus the higher interest rate you pay on what you borrow.
3. Balance transfer fee
If you’re carrying a balance on a high interest rate card, you can transfer it to another card with a lower interest rate. But this isn’t a freebie. The new card issuer will often charge you 3% to 5% of the balance transfer as a fee. While this is an upfront cost, balance transfers can save you money by reducing the interest you pay. Just do the math beforehand to make sure it’s a good deal.
4. Exceed credit limit fee
Shop until you drop and you’ll likely go over your credit limit. That’ll be another $39. This can get expensive quickly because if you just make the minimum payment, your balance will only be slightly below your credit limit. That means it’ll be extremely easy to go over again
5. Annual fee
This fee is simple – you pay it in exchange for being given the privilege of using a particular card. Annual fees had all but disappeared in the past 10-20 years, but the recent credit crisis has seen them make a small comeback. Most average everyday student or rewards card are still annual fee free.
While these fees are ridiculously expensive, they’re all optional. Just as paying interest is. You can choose whether to carry a balance over many months and years. You can choose whether to go over your limit. You can choose to get a card without an annual fee. You don’t even have to have a credit card if you don’t want to. But, if you choose to have a credit card like most people do, it’s wise to know all of the fees that can wreck havoc on your finances if you aren’t careful.
