Don't let a card's annual fee take you by surprise

By  |  Published: March 31, 2017

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
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Question Dear Sally,
I called my credit card company today to make my monthly minimum payment of $30, which is what the bill indicated when I got it the first of the month. When I called today, however, I was told I owed $71. They had added the annual fee just the day before my payment was due. Can they do this without letting me know in advance that the annual fee was due? – Helen

Answer

Dear Helen,
Don’t worry – if your last statement showed a minimum payment of $30, that’s still the correct minimum payment for this month. It wouldn’t make sense, nor would it be practical, for banks to change the minimum amount due the day before a payment is due. The way the credit card company describes balances and payments due can be confusing. I’ve had to take a second look myself sometimes. If you listened to a recording over the phone, it can be even worse.

In your situation, the $71 must have been either the following month’s payment or your balance. The annual fee, however, shouldn't come as a surprise and, no, the issuer is not required to let you know in advance when it will be assessed other than give you notice on your next statement.

The amount of your payment for the next due date may be different. If your monthly minimum payment is usually $30, and you have not incurred any late fees or other penalties, the next month’s minimum payment is probably still $30 or close to it. Most credit card companies calculate the minimum payment as 1 percent of the balance, plus interest charges and late fees. If your current balance is over your credit limit, you must pay enough to bring the balance down to the limit. They generally have a set dollar amount limit for lower balances. If your minimum payment is usually an even $30, you probably fall into that category.

However, a few credit card companies calculate the basic minimum payment as 1 percent of the balance plus “fees.” That’s not just late fees or penalties, but any fees – and that can include the annual fee. If your minimum payment for next month is $71, that’s probably what is happening.

You can compare how various banks set their policies on our minimum payment survey. The minimum payments on low balances vary from $15 to $35, and each bank decides exactly how to calculate required minimum payments.

If you decide to switch to a card that lets you make a lower monthly payment, consider that it’s in your best interest to have to pay more every month, so you pay off your balance faster and pay less interest expense. It’s best to pay the annual fee all at once, otherwise, you’ll be paying interest on your annual fee – and in the meantime making little to no progress on paying down your balance.

One thing you might want to consider is switching to a credit card with no annual fee, a lower interest rate, or both. There are so many cards to choose from, you shouldn’t have to pay annual fees unless you have a card with perks worth considerably more to you than the fee you pay. If your credit score is good, you may be able to get a balace transfer card with a 0 percent introductory APR and shift the balance from your existing card to the new one. While you have a temporary break from interest expense, you’ll be able to contribute all of your payments to the principal.

However, it’s probably too late to get out of paying the annual fee this time around, unless you pay off the entire balance and cancel the card immediately. You can call and ask, though, as a 2017 CreditCards.com survey revealed card issuers often reduce or waive credit card annual fees for good customers – if they ask.

Be careful of balance transfer fees if you change cards. Most commonly, cards charge 3 percent when you transfer a balance from another card. Consider all the factors – minimum payments, annual fees, interest rates, balance transfer fees, and even the effect of closing a card on your credit score – before you make any final decisions about the credit card or combination of cards that is right for you.

See related: When to close an annual fee card, Why do people pay high annual fees on credit cards?

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Updated: 10-23-2017

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