The credit card companies are working hard to recoup the losses they may experience as a result of the new Credit CARD Act. Although the act reduces and prevents many different types of fees, the credit card companies have found some tricky legal ways around the rules. For example, they can’t charge a high annual fee so may instead charge a high processing fee to get a new card. Additionally, they are rapidly increasing fees in the areas where rate hikes are not prohibited.
Here are 7 fees that credit card companies are getting tricky with. Make sure that you look at these carefully on any new credit cards as well as on any communication updating your existing credit cards.
- Annual Fees The Credit CARD Act limits the total allowed amount of an annual fee to 25% or less of the borrower’s credit limit. Many credit card companies are increasing annual fees to push closer to this 25% limit. It’s still best for you to find a good credit card that does not charge you any annual fee.
- Upfront processing fees. One way that credit card companies are trying to sneak around that 25% limit is to effectively charge your annual fee in advance. They do this by charging an upfront processing fee in order for you to qualify for the credit card. Fees for these cards can be as high as several hundred dollars and are generally targeted at no-credit and bad-credit borrowers. Beware of credit cards that are asking you to pay a large fee to get the card.
- Balance Transfer Fees. Reports indicate that the average cost of balance transfer fees has climbed 33% since the Credit CARD Act has been passed. This is an area where fees continue to be allowed and credit card companies feel that this is where they can gain back some of the financial losses that accompany the new credit card rules. You want to look for good deals on balance transfers that offer good interest rates but also offer low fees for making the transfer. In some cases, it may be better not to bother transferring balances to a lower interest rate if the cost to make the transfer is high and the likelihood of rapid repayment is also high.
- Cash Advance Fees. For the same reason as with balance transfer fees, the fees that are associated with getting a cash advance are getting higher and higher. Your number one choice here is to not take out cash advances at all. They cost you a lot of money in the long run. If you must get cash, you may want to see if you qualify for a low-cost personal loan. If you are someone who frequently takes out regular cash advances and you refuse to change this bad habit then you want to look for a card that offers ongoing low interest rates with a low fee, something that might be tough to find right now in the credit card market.
- Foreign Transaction Fees. This area of fees is climbing more than any other area of credit card fees right now. Reports indicate that the fees have increased 50% or more since the Credit CARD Act was passed. The solution here is a very simple one: don’t use your credit cards when traveling to foreign countries. Use cash. Use travelers’ checks. If you must access money from a credit card, do your research before the trip. It may actually be cheaper to take out a cash advance than to incur a large number of foreign transaction fees while you’re on the road. Explore your options and make a smart choice.
- Penalty Fees. Hopefully you avoid penalty fees (such as late payment fees and over-limit fees) anyway. If you make these bad mistakes, though, you’re probably going to start paying even more than before because these fees are rising slightly on many cards. Hopefully that’s incentive to avoid those penalties!
- Inactivity Fees. Technically, inactivity fees are not allowed under the Credit CARD Act. Theoretically, you can keep your card as long as you want without using it and not be charged. However, sneaky credit card companies are finding a way around this by setting minimum spending requirements. You aren’t charged an inactivity fee as long as you meet the minimum amount of spending. In other words, you’re still not allowed to leave the card inactive. This is a questionable practice that may eventually be phased out but it’s something to watch for at the current time.