Three Ways You Can Avoid Credit Card Fees and Save Money
Credit card fees remind me of a kiddie pool we bought for our daughter around a year ago.
The pool was great; just small enough to be safe but big enough for our kid to enjoy playing in the water.
But, over time, the most frustrating thing would happen. I’d pump up the pool and within a few hours, the air slowly leaked out and what was once a cheery pink kiddie pool turned into a saggy circle of deflated plastic.
That’s exactly what credit card fees do to your checking account if you’re not vigilant about avoiding them; they slowly drain your finances and can leave you feeling pretty deflated. If you can keep a close on eye your credit card account, you can save hundreds of dollars a year.
Set Up Automatic Payments to Avoid Penalty APR’s
Nearly every credit card you’ll find has an annual percentage rate. This is a number that the credit card company uses to calculate how much interest you’ll pay every month.
But what many consumers fail to realize is that there are several popular credit cards that have a penalty APR that’s typically at least 10% higher than the normal APR you’re given.
And here’s the real awful thing about these astronomically high penalty APRs – most of them kick in after you make one late payment. That’s right; pay late once and your interest rate will shoot up to, in most cases, 29.99%
Here’s a list of four credit cards with penalty APR’s; the lowest regular APR is listed first, then the penalty rate:
- Citi Double Cash: 14.49%, 29.99%
- American Express Blue Cash Preferred: 13.99%, 29.99%
- Bank of America Cash Rewards: 13.99%, 29.99%
- American Express Hilton HHonors Surpass 16.24%, 29.99%
Let’s say you have a $4,000 balance you carry over each month on your Citi Double Cash card. One month of interest at 14.49% would result in a $47 monthly interest payment. If you make a single late payment, your 29.99% penalty APR would result in a $98 monthly payment.
Over the course of a year, your penalty APR could cost you $600 more than your regular APR.
Save yourself that $600 by setting up your credit card’s automatic payments to pay at least the minimum payment. Doing so ensures that you’ll never pay late and get stuck with a very costly penalty APR.
Ask Your Credit Card Company to Waive Your Annual Fee
Annual fees are what most rewards credit cards charge you to use their card every year. In some cases, a card will waive the annual the first year to sweeten the deal a little bit.
In most cases, though, you can expect to pay an annual fee between $50 and $100, especially if you have a hotel, airline or travel rewards credit card.
What most consumers don’t know, a 2017 study from CreditCards.com points out, is that you can ask your credit card company to waive your annual fee.
The study revealed that only 11% of the survey’s respondents asked their credit card company to waive their annual fee; that’s just about one in 10 of us.
What’s amazing is that 51% of those who asked for the waiver received it, which is a big deal whether your annual fee is $59 or $99.
Always Pay Off Your Store Credit Cards by the End of the Promo APR Period
Interest rates have shown up again on this list because they’re one of the easiest ways for credit card issuers to make money from consumers.
One of the sneakiest ways interest is applied to your account is through “deferred interest”, a tactic often used by store credit cards. The Home Depot and Best Buy cards are good examples of this.
Here’s how deferred interest works. You buy a $1,000 TV as part of a deal where you won’t pay interest for 12 months. The APR on the card is 20.99%, but it’s not a big deal because you’re going to pay off the balance, right?
Despite your optimism, you still have a $500 balance on your store credit card when the promo period ends. Guess what? The store is going to charge you interest on the original $1,000; that’s how deferred interest works.
In this example, if you have a 17.99% APR, then you’d end up paying $179.90 in interest on that original purchase.
Get around this fee by either paying off your balance in full before the promo period is over or by waiting to buy what you need to buy until you have the money to buy it.
Wrapping It Up: Be Smart and Save Hundreds
Think of your credit cards not as a way to pay for stuff, but as the credit card company’s way of getting you to pay them interest and annual fees.
You have control over whether or not they can win the battle. Set up your credit cards to automatically pay the minimum balance on your card to avoid a penalty APR (not to mention late fees, too).
Call your credit card company and ask them to waive the annual fee on your card; doing so can save you money you could put toward a vacation or necessities around the house.
Finally, if you choose to get a store credit card with deferred interest, make sure you have a plan to pay it off before the promo period ends. If you don’t have a plan, avoid these cards and pay for what you want the old-timey way: with cash.