How to avoid credit card fees

By Jeremy M. Simon

In addition to paying interest on the money you borrow when using a credit card, there are an assortment of fees that can end up costing you some significant change.  But by having your cardholder agreement handy and following some easy steps, many fees can be avoided.  

Under universal default, credit card issuers can boost your interest rates if you are late with bills or payments to another lender.  To see if universal default could apply to you, read through the section of your cardholder agreement that discusses default pricing.

If you find a mention of default pricing being based on any information in your credit report, that is a signal that your card issuer has a universal default policy.  If you are concerned about universal default, avoid carrying a balance on such a credit card.

Meanwhile, double-cycle billing occurs when the credit card issuer charges interest on your entire purchase even if you have already paid some of it off -- resulting in interest charges for the total of the average daily balances for the current and prior billing periods.

To see if your credit card employs double-cycle billing (sometimes known as two-cycle billing), find out if the bank calculates your finance charge based on a single billing cycle only.  Locate where your credit card agreement refers to "average daily balance" to see how interest is calculated.  As with universal default, paying your credit card balance in full is a good defense against this practice.

Elsewhere, while credit card users are likely already familiar with the late fees that are charged for not getting a payment in on time, they may remains unsure of the best ways to avoid them. 

The Internet can be a great tool for avoiding credit card late fees.  One technique is for cardholders to set up electronic credit card payments ahead of time.  In another, the cardholder can visit the bank's website to make a minimum payment online far in advance on the billing due date.  As the due date approaches, they may then be able to pay the remainder of their monthly credit card bill.

And, if you know that you cannot make a payment on time, a call to alert the credit card issuer ahead of time may help you catch a break on late fees.

Balance transfer credit card fees are another cost consumers may want to be aware of.  These fees are generally are percentage of the balance transfer amount, but without a cap on fees for a large balance transfer, they could end up being very expensive.

To find out how your bank determines fees for transferring a balance from another credit card, look at your cardholder agreement.  Should you see that there is a reference to a minimum fee but no indication of a maximum fee for balance transfers, it is likely that there is no limit to how much one could cost you.

Reviewing your cardholder agreement will help you identify and avoid potential credit card fees.

Published: May 10, 2007

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