You got your first credit card. As you look at the terms and conditions, you notice a variety of fees and descriptions. What do they all mean?
Here is a breakdown of a few common fees you can expect to see in a typical credit card agreement.
As the name implies, it is a common type of fee that is paid annually. Card issuers charge this fee to the cardholder solely for the convenience of having a credit card. Not all cards have an annual fee. Many card issuers waive the annual fee for the first year, allowing the cardholders to enjoy the benefits without paying the cost. Cardholders should weigh the benefits of the credit card before signing up for one that has an annual fee.
A fee that is stipulated on every card agreement is the late fee. This fee is charged any month that your minimum credit card payment is not paid by the due date. You can avoid a late fee by making your credit card payment on time. In fact, not paying on time can have implications on your credit score as well. If you anticipate having problems making the payment for some reason, call your credit card company ahead of time to arrange an alternate payment schedule.
Balance Transfer fee
This fee is charged for a balance transfer transaction. In such a transaction, you are moving your debt balance from one credit card to another. The rationale may be that you are moving a debt balance from a high-interest rate card to a low-interest rate card, and thereby effectively reducing the interest amount due. Issuers usually charge the greater of either a percentage of the balance transferred or a set amount as stipulated in the credit card agreement.
Cash advance fee
This fee is charged with a cash advance service that most issuers provide. This service allows cardholders to draw on the credit line in the form of cash through an ATM or at a bank or financial institution, up to a certain limit. While a very attractive service, there is a hefty cost of not just cash advance fee but also any ATM fees you may incur. You should try to avoid cash advance transactions as the interest charged is higher than the typical credit transaction. Keep in mind that there is usually no grace period, meaning interest starts piling up daily until you pay it back.
This fee is charged any time you carry a debt balance above your minimum monthly due beyond the grace period. It is essentially a convenience fee. It is best to pay off your balance to avoid this charge.
In conclusion, understanding these common fees in the credit card agreement goes a long way in using the credit card more effectively.