Credit card fees are annoying, but they are also avoidable. We take a look at the three most common charges you’ll come across, and show you how to dodge them.
#1: Balance transfer fee
If you have racked up debt that is earning interest, 0% balance transfer cards are a great way to pay it off cheaply. What’s not so great is the fee that accompanies them.
The balance transfer, or admin, fee usually costs in the region of 2% - 3% and is basically a way for the banks to guarantee they’ll make some money off you, even if you clear your debt within the interest-free window.
For those who have a sizeable debt that will take a long time to clear, then it’s certainly worth switching to the longest possible balance transfer deal and paying the fee. However, if you have a small debt that can be cleared in just a few months, it’s essential you avoid the fee as it actually works out quite expensive.
Consider the following example: You have £1,000 debt that will take you four months to clear, so you take out a bog standard 0% for 12 months balance transfer card and pay a 3%, or £30, fee. Had you simply left the money on your credit card with an APR of 14.9%, you would have paid £31 in interest over the same period. So even though you switched to a “0%” card, the bank is still making a handsome profit off of you.
The lesson here is that anyone with a small debt that can be cleared quickly should opt for one of the few short term, fee-free balance transfer deals out there, such as the Britannia Building Society Classic card (0% / 5 months).
#2: Foreign usage fee
No doubt you’re looking forward to your next holiday – as is your bank. This is because they earn a big chunk of your vacation expenditure by charging you up to 3% every time you use your card abroad.
It’s a lucrative practice, earning the banks around £650 million in 2007 alone. The good news is that there are a couple of credit cards on the market that don’t carry this fee, namely the Abbey Zero credit card and Nationwide’s credit card.
Of course, you may feel that switching credit cards is a little too much effort just to avoid a fee. In which case you may want to consider one of the various prepaid travel money cards, which allow you to top up in the local currency and thus bypass the foreign fee altogether.
The Post Office Travel Money card is an attractive option, as it charges no set up or monthly fees.
Cash advance fee
This is probably the biggest rip off in terms of overall cost to you. When you draw money from an ATM with your credit card, not only are you hit with a fee of up to 3%, but that debt also racks up interest at nearly twice the standard rate – and because of the inverse order of payments, it’s also the most difficult debt to clear.
As a result, the best advice for avoiding this fee is to simply avoid drawing money from ATMs with your credit card altogether.
If it is completely unavoidable, then choose the Abbey Zero card, as this at least waivers the up front fee (note that your debt will still earn interest at a far higher rate).
