Using a rewards credit card is one of the best ways to save money, earn free money, and buy things with a 30-day interest-free loan. I personally use the Chase Freedom Unlimited Rewards credit card for all my personal purchases and use the Chase Ink Business Unlimited card for all my business expenses.
Each year, I end up accumulating over 150,000 points, equivalent to $1,500 – $2,500 a year in cash, to spend on two roundtrip flights to Hawaii or other things.
Despite getting a $750 sign-up bonus after spending $7,500 within three months and 1.5% unlimited cash back, my Chase Ink Business Unlimited card has no annual fee.
Neither does my Chase Freedom Unlimited card.
Run The Numbers
In the past, I had a different Chase credit card with a $95 annual fee. I was okay paying that fee because I getting at least $1,000 a year in benefits from the card.
So you see, not all fees are bad. You just have to do the math and make sure you’re getting more out of the card than its annual fee. If you still don’t like the idea of any annual fees, these are the best credit cards with no annual fee.
But, annual fees are not the only fees to be aware of. Let’s look at all the main credit card fees below.
The Main Credit Card Fees
Americans pay over $122 billion in annual fees and interest on their credit cards as of 2019, up 50% from five years ago. These fees are why credit card companies like Visa and Mastercard are such large businesses.
As a credit cardholder, you are either one of two types:
1) The financially savvy type who pays his or her credit card in full each month
2) The less financially savvy type who sometimes misses a payment and accrues interest, doesn’t read the fine print, and buys way more than he or she can afford
My hope is that all readers of Financial Samurai are the first type of cardholder. You take advantage of credit cards to improve your quality of life, and not the other way around.
1. Annual Credit Card Fee
The annual fee of a credit card is the main fee everyone focuses on. They typically range between $0 to $550 for 98% of credit cards out there.
For example, Chase charges $550 for their Chase Sapphire Reserve card. American Express charges $550 for their Platinum Card. These fees are high, but if you charge more than $36,000 a year on these cards, you’re going to benefit more than the annual fee.
It’s important to choose a credit card that matches your spending habits and lifestyle.
These annual fees are simply the cost that the issuer charges you to keep your account open and active. Whether you spend a penny on the card or you decide to max it out, you’ll on the hook for a flat annual fee every year you’re a cardholder.
The best way to avoid the annual credit card fee is to go through your spending habits and choose on of the best zero annual fee credit cards out there.
I personally like the Chase Freedom Unlimited card with no-annual fee, 1.5% unlimited cash back on everything. Plus, a $200 bonus after spending just $500 within three months of account opening.
2. Balance Transfer Fee
Sometimes you want to transfer a balance from a credit card with a high APR to a credit card with a 0% introductory APR. That’s a smart move given credit card interest rates average over 14%.
To transfer a balance, there is often a balance transfer fee of between 3% – 5%. So although you might get a 0% introductory APR offer for 12-15 months, you will likely still have to pay the fee.
But if the choice is between paying a 18% APR or a 3% balance transfer fee and a 0% APR for 15 months, it probably makes sense to transfer. Here’s a list of the best balance transfer credit cards today.
3. Cash Advance Fee
You should never use a credit card for a cash advance, unless you are absolutely desperate and have no more savings.
Most credit card issuers charge either a flat fee or a percentage of the cash advance amount, whichever is greater. For example, a typical cash advance fee is the greater of $10 or 5%.
So, if you take out a cash advance of $100 under these terms, your cash advance fee would be $10 since 5% of $100 is only $5. On the other hand, if you take out a cash advance of $500, your cash advance fee would be $25.
Just know that some cards charge a cash advance fee of between 10% – 35%. So just be aware of what the fee is before making this desperation last move.
The only way to avoid a cash advance fee is by avoiding cash advances and cash equivalent transactions on your credit card. If you can’t avoid the transaction completely, you can minimize the cash advance fee you pay by reducing the amount of cash you withdraw on your credit card. And since interest starts accruing right away on a cash advance, paying your cash advance back quickly will lower the overall cost of the advance.
4. Expedited Payment Fee
Another desperation fee to watch out for is an expedited payment fee. You might find yourself struggling to pay your credit card balance because your paycheck was late or you simply forgot until the last minute. To protect your credit score and not miss a payment, some credit card companies will charge you an expedited payment fee over the phone.
The easiest way to avoid expedited payment fees is to set up automatic payments for your accounts. If you aren’t sure you’ll have the funds to fully pay off the card, set the account to at least make the minimum payment. This will allow you to avoid a last-minute scramble and potential fee.
Credit card payments are typically due on the same day each month. Plan ahead and don’t get caught by surprise when your payment is due. If you happen to be late, you can usually call and ask to get that late payment fee waived around once a year. I’ve done this at least six times over a 10-year period.
5. Finance Charges (Paying Interest)
Finance charges are the worst “fees” to pay because they are completely self-inflicted. Before buying anything, make sure you know you can comfortably pay it off at the end of the month. To buy something on sale, and then have to pay a 15%+ APR is going one step forward and two steps backwards!
The average credit card interest rate is now about 17% according to FRED. And the range is generally between 15% – 29.99%. You must not pay these finance charges if you want to eventually become financially independent.
Notice how the average credit card interest rate below has steadily risen since 2016. This is because the Federal Reserve started raising interest rates at the end of 2015. A 17% average credit card interest rate is huge! Not even the great Warren Buffett has been able to return more than 17% on average in his career.
Rates finally started to come down in 2020, however, due to the global pandemic and the Fed’s rate cuts. But that’s no reason to become irresponsible with credit card use.
Please realize that paying the minimum or less than the full balance each month still incurs a finance charge. You only avoid the late payment fee.
6. Foreign Transaction Fee
A foreign transaction fee is a fee you pay when you use your rewards credit card outside the United States. You will already be losing some purchasing power due to the exchange rate differential. Avoid having to pay an international transaction fee as well.
I suggest you sign up for one of the best credit cards with no foreign transaction fees before flying abroad if you don’t have one.
Cards like the Capital One Venture Rewards Card are fantastic for traveling abroad. The Venture Rewards Card has no foreign transaction fees. You also get 50,000 sign up bonus miles, equivalent to $500, after you spend $3,000 within three months. And you can earn 2x miles fast on every purchase.
Here is my review of the best international travel credit cards. I’ve been to over 60 countries so far and always use an international travel credit card when I’m abroad.
7. Over-the-Limit Fee
This is a rare fee thanks to increasing legislation that prevents this fee from happening. But it might still occur.
If you opt in to the ability to exceed your credit limit, you may be charged a fee for doing so. The law states that you must opt in before you can exceed your credit limit, so be aware of what you’re agreeing to before choosing this option.
Nobody should ever opt in to exceed your credit limit. Instead, you should ask your credit card company to raise your credit limit before exceeding it. But you’ve got to know thyself and how much you can really spend before doing so. Always be aware of your credit limit and how much remaining you have each month.
8. Late Payment Fee
This one is a common fee for those of you who do not set automatic payments. I’ve paid this fee many times before because I simply forgot or was traveling for work.
A late payment fee is charged to your account when you fail to make your minimum monthly payment on time. This fee is typically capped at your minimum payment level. Most late payment fees I see are around $20.
Based on my experience of owning and analyzing credit cards for over 25 years, if you incur a late payment fee, you can use a “get out of jail for free card” by calling them up and asking for forgiveness. The credit card companies will generally drop the fee once a year.
Just be careful not to be late more than once a year because it will negatively affect your credit score.
9. Returned Payment Fee
The final credit card fee to be aware of is the returned payment fee. A returned payment fee will occur if your monthly payment is not accepted for insufficient funds. It’s like bouncing a check and having to pay a fee for bouncing it.
If this happens, make sure you aren’t charged both a returned payment fee and a late payment fee. A returned payment fee can also be forgiven if you are in good standings and call in to ask for the fee to be removed.
To avoid a returned payment fee, always keep a cushion in your checking account and keep tabs of when your monthly bills are due.
Avoid Credit Card Fees Please
Now that you know all the credit card fees, the only fee you should willingly pay is the annual fee because the credit card provides so much more value.
All other fees should be avoided simply by setting up an automatic payment system and spending within your means. Credit card companies are counting on a percentage of cardholders to be unorganized and undisciplined with their spending. As a Financial Samurai, you aren’t one of them!
Some people get into trouble when they sign up for too many cards to take advantage of the sign up bonuses. I’ve been there because who doesn’t love free money? Just make sure to keep track of all your cards and when payments are due. I won’t have more than 3 or 4 rewards credit cards open at the same time.
Take Advantage Of Rewards
Over the years, my family and I have gotten over $100,000 in rewards benefits from using our credit cards. It’s a great feeling to spend money on things you would have spent anyway and then get free money or bonus points.
For example, I’ve used points to fly for free to cool places like Hawaii and Europe. But we’ve also probably spent a little more than we should on some occasion, which is what we all need to be careful of doing.
These are my favorite personal credit cards:
- Chase Freedom Unlimited – No annual fee, 1.5% cash back on all purchases, $200 bonus after spending $500 on purchases within three months
- Capital One Quicksilver Rewards Credit Card – No annual fee, 0% on purchases for the first 15 months, plus a one-time $200 cash bonus if you spend $500 on purchases within the first 3 months, 1.5% cash back on all purchases
- The Chase Freedom Flex Rewards Credit Card – No annual fee, 5% cash back on revolving categories, $200 bonus after spending $500 on purchases within three months
These are my favorite business credit cards:
If have an LLC, S-Corp, C-Corp, or are simply a sole proprietor with no EIN, a business credit card is a must have.
- Chase Ink Business Unlimited – No annual fee, earn a $750 bonus after you spend just $7,500 on the card within the first three months after account opening, 1.5% cash back on all purchases
- Chase Ink Business Cash – No annual fee, also earn a $750 cash bonus when you spend $7,500 in the first 3 months. Earn 5% cash back on office supplies, internet/cable/phone each year ($25,000 combined limit), 2% cash back rewards on gas and restaurants each year ($25,000 combined limit), 1% on all other purchases, unlimited rewards.
Pay off Your Debt Faster
If you don’t have enough cash, getting a personal loan from Credible is a good place to start.
Personal loan rates have come down significantly in comparison to the average credit card interest rate. Thus, if you have expensive credit card debt, consider consolidating your debt into a lower interest-rate personal loan.
Credible has the most comprehensive marketplace for personal loans. Up to 11 lenders compete for your business to get you the best rate. Get real personal loan quotes in just two minutes after you fill out an application. Check out Credible today and see how much you could save.
For further suggestions on saving money and growing wealth, check out my Top Financial Products page.
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About the Author: Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends most of his time playing tennis, traveling for free with his credit card rewards points, and taking care of his family.
Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.