What fees are charged when you use consumer credit?

Credit cards are often seen as fee filled debt traps due to high fees for doing everything from cash advances to late payments. People who are against credit cards tout them as evil and something that should be avoided at all costs. But what many people don’t realize is that if you pay your balance off in full each month, most credit cards have no fees.

However many Americans don’t pay off their credit cards in full each month and often incur fees that can be avoided.

Some of the common fees that are charged on credit cards are as follows:

Interest rate: This is the APR charged for all purchases and calculated daily that one will pay on every purchase if the bill is not paid in full by the due date. Most cards offer grace periods allowing the customer around 20 days from purchase date to pay the bill before incurring the interest. Interest rates on cards can range from low- 4 or 5% to extremely high 22%, with some cards having default rates as high as 39% if you miss a payment.

Late Fees: Most cards have late fees of around 15-39 dollars if you are a day or even hours late on a credit card payment. These can be avoided by paying early, paying online, or setting up automatic payments from your checking account. Only the minimum payment is required to avoided this fee.

Over Limit Fees: Most cards also charge a fee if you go over your credit limit; often they will authorize the purchase but charge a hefty fee around the same as a late fee. Kind of like an overdraft charge.

Cash Advance Fees: All cards charge a fee that is a minimum amount or set percentage of the amount you take out as cash. On top of this set fee, interest on cash advances is often higher and has no grace period.

Annual Fees: This is a fee charged yearly for membership to the credit card. Some companies charge this and in return the member is given perks, special access to travel and events, and so forth. Many people believe annual fees are a scam and more and more credit cards do not carry them.

Merchant Fees: This is the fee a credit card processor (like Visa or Mastercard) charges a merchant every time a card is swiped. The fee is generally between 2-5% of the purchase and some consumers believe this fee and increased use of credit is what drives prices up. The credit card user is not charged directly for this fee (although as stated, some merchants raise prices on all products to offset the costs since charging more for credit only is illegal), and often this fee is used to pay for rewards program payouts on credit cards. This is also a way for credit card companies to profit off of ‘deadbeats’ or those credit card users who pay their bills off in full every month and thus incur no interest charges.

With all these fees, credit cards may seem like a rip off. However most if not all of these fees can easily be avoided. Treat a credit card as a tool to build credit and get some rewards back, not as extra money. By paying the bill in full every month you’ll avoid interest charges completely. Make sure you pay in full on time to avoid late fees and never go over your credit limit. Avoid cash advances at all costs and shop around for the perfect credit card. Annual fees are seen as a rip off, many great rewards cards offer no annual fee so if you use credit responsibly you can pay nothing and get all the benefits of credit. Besides, the companies profit either way, because everytime you swipe they take a little off the top.