Common Credit Card Charges and Ways to Avoid Them
While credit cards carry a lot of benefits, they also carry a number of charges that can add up to a significant amount. When using a credit card, you need to be aware of these charges so that you never miss payments and end up paying a lot of interest.
The type of card you have and how you use it have an impact on the fees you pay. With careful financial management, you can avoid incurring additional charges on your card. This blog entails the credit card charges that you must be aware of to minimise your expenses.
5 Common Credit Card Charges and Ways to Avoid Them
The majority of credit cards come with different charges that you must be aware of to save thousands of rupees. Let’s check out 5 of the most common credit card charges that cardholders have to pay.
- Late Payment Fees
Depending on the amount you have borrowed and the outstanding balance on your statement, card issuers charge penalties for late payments. If you fail to pay at least the minimum amount on your credit card by the due date, you will be subject to a late fee. However, not all cards charge this fee, but if you have one that does, it could add an extra sum to your balance.
The late balance fees typically range from ₹100 to ₹5,000. However, some banks do not charge late payment fees if the statement balance is less than ₹10. Additionally, some cards will charge you a penalty APR, even if your credit card does not explicitly have a late fee for making a late payment.
- How to Avoid?
To avoid late payments you should make your payments in full before the due date. As per a recent RBI direction, if you have missed your credit card payment, you can pay your dues within three days after the due date.
However, it is better not to take chances. To ensure that you never miss your bills, opt for automatic payment. This is one of the most viable options if you usually forget to pay your credit card bills. The automatic payment feature saves you time and effort and you do not need to make payments manually. Most importantly, it helps you stay debt-free.
- Cash Advance Fees
Unlike other loans, the credit card advance does not require any kind of approval from the bank or does not require any other documentation. So, many of us make it a habit of withdrawing money from ATMs. If you use your credit card to withdraw cash from an ATM against your credit limit or to transfer to your bank account, then there is a possibility that the card issuer can charge a cash advance fee.
Bank may charge it as a one-time fee or a percentage of the amount you withdraw, or it could be both. Cash withdrawal with a credit card can attract a high interest charge (approximately 2.5% of the amount withdrawn) even during the interest-free period. It continues to increase every month until your bill amount is paid in full.
- How to Avoid?
Henceforth, you should avoid using cash advances on your credit. But if you need to take out cash from an ATM using a credit card due to emergency purposes, it is necessary to clear your dues as soon as possible.
- Reward Redemption Fee
Most credit card issuers provide lucrative rewards in the form of discounts, cashbacks and reward points when you pay for products/services. You can accumulate reward points to make a meaningful purchase later.
However, most of us are not aware of some limitations that come with redeeming rewards. Some issuers charge a fee every time you redeem reward points. So, make sure that you read all the terms and conditions to find out about this hidden fee.
- How to Avoid?
Whether or not there are hidden fees, you should always ask about the cost of borrowing applicable to your credit card. To avoid the reward redemption fee, it is necessary to check out all associated costs such as the attached costs. For instance, many credit card issuers charge a flat reward redemption fee of ₹99 plus GST. In this case, you should avoid making small redemptions.
- Joining Fees/Annual Fees
Most of credit cards have joining fees at the time of joining and charges renewal/annual fixed fees every year just for having the card. The joining/annual fee is different for different credit cards even when issued by the same bank. This means that you just need to pay an annual fee every time you want to renew your credit card.
- How to Avoid?
Not every bank imposes this fee, so the best way to avoid it is to inquire about it in advance.
Most of the credit card issuers who charges joining fees provide joining rewards like 1000 cashback points if you have paid ₹ 1000 as joining fees. You can use these rewards wisely to compensate joining fees.
If you use your credit card wisely, you may not need to pay the annual fee. For instance, if you exceed predetermined spending within a time frame, the bank will waive the annual fee. There are plenty of available credit cards that do not come up with an annual fee. Some credit cards waive the annual fee for the first year as an introductory offer.
- Foreign Transaction Fees
Some credit cards charge a foreign transaction fee when you make a transaction in a foreign currency. This thing generally happens while travelling abroad or making a transaction on a foreign website online.
There are generally 4 charges levied on credit cards for foreign transactions. This includes international card withdrawal fees, foreign currency conversion fees, standard cash withdrawal fees, and foreign transaction fees. So when you use your credit card on foreign websites or countries you are liable to pay such fees which range from 3 to 4%.
- How to Avoid?
To avoid such fees, always know the terms of your card. If your bank charges hefty fees, avoid foreign transactions and try to pay in local currency while travelling. There are also some special travel credit cards that offer lesser charges for overseas transactions.
Credit cards are one of the most important tools that you should use with caution. By knowing the terms and conditions, you can avoid the pitfalls of high expenses that can offset any rewards you gain. That is why before opting for a credit card, going through its terms and conditions and charges is essential.
Frequently Asked Questions
What are the charges for cash withdrawal from a credit card?
Most credit card issuers offer you the ability to use your credit card to take out money through an ATM. Typically banks may charge 2.5% to 3% of the withdrawn amount when the minimum amount withdrawn is ₹300 to ₹500.
How much foreign transaction fees are applicable to a credit card?
For foreign transactions, your credit card can charge an additional currency conversion fee which generally ranges from 3% to 4%.
What are the 6 different common types of charges on a credit card?
The 6 most common types of fees on credit cards include joining fees, annual fees, late payment fees, cash advance fees, reward redemption charges, and foreign transaction fees.