Credit cards provide convenience and financial flexibility, but they also come with different fees and charges. Many cardholders are unaware of these costs, which can lead to unexpected expenses. Understanding these credit card fees and charges can help you use your credit card wisely and avoid paying unnecessary fees.
Types of Credit Card Fees and Charges
Annual Fees
Many credit cards come with an annual fee that is charged once a year. Some cards offer lifetime free membership, while others may waive the first year’s fee. The annual fee varies based on the type of card and the benefits it provides.
Interest Charges
If you don’t pay your full credit card bill by the due date, the remaining balance attracts interest. This charge is also known as the finance charge and is usually high, ranging from 30% to 40% per year. To avoid this, always try to pay your full bill on time.
Late Payment Charges
If you miss paying your credit card bill by the due date, the bank imposes a late payment charge. This fee varies based on your outstanding balance and can be quite expensive. Paying your bills on time will help you avoid this charge and maintain a good credit score.
Cash Withdrawal Fees
Withdrawing cash from an ATM using a credit card is not free. Banks charge a cash advance fee, which is typically between 2.5% and 3.5% of the withdrawn amount. Additionally, interest starts accruing immediately, making cash withdrawals an expensive option.
Overlimit Fees
If you spend more than your assigned credit limit, the bank may charge an overlimit fee. Some banks allow transactions beyond the credit limit, but they come with extra costs. To avoid this, always track your spending and stay within your credit limit.
Foreign Transaction Fees
When you use your credit card for international transactions, banks charge a foreign currency markup. This fee is generally between 2% and 3.5% of the transaction amount. If you frequently travel abroad, choosing a card with a low foreign transaction fee can help save money.
Balance Transfer Fees
Some banks allow you to transfer your outstanding balance from one credit card to another at a lower interest rate. However, this facility often comes with a balance transfer fee, which is usually around 1% to 3% of the transferred amount.
EMI Conversion Charges
Many banks allow you to convert big purchases into monthly installments. However, this service comes with processing fees and interest charges. Before converting transactions into EMIs, check the total cost, including interest and other charges.
GST on Credit Card Fees
All credit card fees attract Goods and Services Tax (GST) at the applicable rate. This tax applies to annual fees, late payment charges, interest, and other charges. The GST amount can increase your total expenses, so it is important to keep this in mind.
How to Reduce Credit Card Fees
Choose the Right Credit Card
Different credit cards have different fees and benefits. If you want to avoid high annual fees, opt for a lifetime free credit card. If you frequently travel, choose a card with a lower foreign transaction fee.
Pay Your Bills on Time
One of the best ways to avoid extra charges is to pay your credit card bill on or before the due date. This helps you avoid late payment fees and high interest charges on unpaid balances.
Avoid Cash Withdrawals
Withdrawing cash using a credit card should be your last option due to the high fees and immediate interest charges. Instead, use a debit card or other sources for cash withdrawals.
Stay Within Your Credit Limit
To avoid over-limit fees, always keep track of your credit card usage. Many banks allow you to set transaction alerts to help monitor your spending.
Check for Hidden Fees
Before applying for a credit card, read the terms and conditions carefully. Check the charges for services like balance transfers, EMI conversions, and cash withdrawals.
Use Reward Points and Offers
Some credit cards offer reward points that can be used to pay fees or get discounts. Additionally, some banks waive annual fees if you spend a certain amount in a year.
Choose a No-Foreign Transaction Fee Card
If you frequently use your credit card for international transactions, select a card that offers zero or low foreign transaction charges. This can help you save a significant amount on overseas spending.
Also Read:- Best Credit Cards for Health and Wellness Benefits in India
Conclusion
Credit card fees and charges can add up quickly if you are not careful. By understanding these costs and using your credit card wisely, you can avoid unnecessary expenses. Always read the terms before using your card, pay bills on time, and stay within your spending limits to make the most of your credit card while keeping fees under control.