Hidden fees on your credit card
You've decided to get a credit card, confident that you can manage your finances well enough to avoid late payment fees, and build up your credit score to become a reliable borrower. However, while avoiding late fees is an essential part of using a credit card effectively, it's just one piece of the puzzle. Several other fees and charges can quietly add up, potentially costing you more than you expect. Understanding these hidden fees can help you use your card more efficiently and avoid unnecessary costs. To make sure you can separate facts from myths we have all the information you need.
Hidden fees on your credit card
Using your card abroad
If you plan to use your credit card while traveling abroad, it's important to be aware of foreign transaction fees. Many credit card issuers charge a fee, often around 2-3% of the purchase amount, for transactions made in a foreign currency or even when using your card with international merchants online. This fee can quickly add up, making your overseas purchases significantly more expensive than they appear at first glance. For those who frequently travel, it may be worthwhile to look into credit cards specifically designed for international use, which offer lower or no foreign transaction fees. This way, you can save money and make your travels more financially efficient.
Withdrawing cash
While using your credit card to withdraw cash from an ATM might seem convenient in a pinch, it comes with several hidden costs. First, most credit card companies charge a cash advance fee, typically around 2-5% of the amount withdrawn. This fee is applied immediately, making your cash withdrawal more expensive from the start. Moreover, unlike purchases where you might enjoy a grace period before interest kicks in, cash advances start accruing interest right away, often at a higher rate than regular transactions. The combination of these fees can make withdrawing cash using your credit card a costly decision, best avoided if possible.
Balance Transfer fees
A balance transfer can be an effective way to manage and pay down debt more quickly by moving the balance from one credit card to another with a lower Annual Percentage Rate (APR). However, it's essential to understand the costs associated with this strategy. Most credit cards charge a balance transfer fee, usually around 2-3% of the amount being transferred. While this fee might seem small compared to the potential savings in interest, it can still add up, especially with larger balances. Before initiating a balance transfer, carefully calculate whether the potential interest savings outweigh the cost of the transfer fee.
Insuring the card
Credit card issuers often offer various types of insurance for cardholders, which can provide peace of mind but also come at a cost. Payment protection insurance, for example, covers your minimum payments if you lose your job, become ill, or pass away. While this insurance can prevent your debt from growing and ease the financial burden on your family, it usually comes with a monthly premium that can add up over time.
Card protection insurance is another option, covering any unauthorised transactions if your card is lost or stolen. Before agreeing check whether your card already offers fraud protection as part of their terms, don’t get caught out paying more than you need to.
