Finance experts will often use coffee as an example of how small costs can add up quickly. For example, buying a $5 cup of coffee at your favorite shop every day adds up to $150 a month and $1825 over the course of a year. That’s enough for a vacation or a fancy bed set. In other words, coffee may feel like a negligible cost in the short term, but paying it consistently over a long period of time will add up to some serious cash.
Now imagine that instead of choosing to take out your wallet and pay that expense, it was actually being deducted from your bank account without your knowledge. That’s the nature of hidden fees.
It’s not that credit card issuers and banks actually slap you with fees that are completely invisible – that would be illegal – but there are plenty of ways to disguise, downplay or otherwise bury fees and penalties in the fine print. Chances are, you’re paying at least one kind of fee you don’t know about.
If you’re ready to stop forking over your hard-earned money, read ahead for a list of the most common hidden fees and how to avoid them. With a little effort, you can keep card issuers and banks from draining your finances penny by penny.
Foreign transaction fees
When you’re traveling abroad, busy admiring the sights, shopping for souvenirs and enjoying the local cuisine, what doesn’t pop into your mind? Paying fees every time you swipe your credit card.
Many credit cards still charge foreign transaction fees, which are usually 3% of the purchase price. For a $200 three-course meal in Paris, you’ll pay $6 in fees. That sounds small, but if you’re traveling for a couple weeks, those fees can add up quickly.
How to avoid them: Fortunately, many credit cards don’t charge foreign transaction fees nowadays, especially if they are travel credit cards that also reward users for going abroad.
Before going on vacation, look to see if any of your cards currently have foreign transaction fees. You can also apply for a new card that has no foreign transaction fee, which usually requires a credit score of 690 or higher.
Overdraft fees are some of the most common types of fees consumers can incur. They happen when you spend more than you have in your bank account, often costing between $25 and $35 per item. Sometimes, banks can actually charge overdraft fees multiple times a day, so you can incur hundreds of dollars of fees in one day.
How to avoid them: You can turn off overdraft protection for your checking account, which will mean your card will be declined if there is not enough money in the account. This is dangerous if you only have a debit card, but if you have access to a credit card or a PayPal account, you’ll be fine.
You can also link a savings account to your checking account, so any negative balance will be taken from the linked account. Call your bank to see if this is a service they offer and if there are any fees associated.
A simple solution is to always have a credit card handy. Unless you hit your credit limit, there’s no way to overdraw your credit card.
A few years ago, in the wake of the recession, many banks started charging customers account maintenance fees between $4 and $12 a month. These fees were an abrupt change from the free accounts that people were used to, and they caused a huge uproar. Many switched to credit unions in the wake of these fees.
However, some people kept using their accounts, not wanting to go through with the hassle of creating a new account and changing all their autopay and billing information. Monthly fees can cost more than $100 a year – a huge price to pay for no extra service.
How to avoid them: Many banks still offer free checking and savings accounts if you meet a few requirements, such as having direct deposit, keeping a minimum balance or completing a certain amount of transactions.
Other banks have no free option. If you’re not comfortable paying a monthly banking fee, it’s time to switch to a new bank or credit union. Search online for banks that don’t charge a monthly fee or contact your local credit unions.
Many consumers are happy to pay the minimum on their credit card every month, not realizing how much they’re paying in interest. The average credit card holder pays an APR of 15% every month. On a $500 balance with a $25 minimum payment, you’ll pay $121.25 in total interest charges, or almost 25% of your total balance.
How to avoid them: The only way to avoid interest fees of any kind is to pay off your balance in full every month. If you can’t afford to do that, then pay as much as possible so the interest accrues on a smaller balance. Paying more on your card will show whether you’re overspending or you’re living within your means.
If you’re overspending on your cards, the only way to mitigate your fees is to pull back on your expenses and reign in spending. Consider cutting subscription services, selling some of your possessions or limiting the frequency with which you eat out if you’re having trouble figuring out how.
Balance transfer fees
When you transfer a balance from one credit card to another, you have to pay a balance transfer fee, usually between 3% and 4% of the total amount. For example, a $5,000 balance transfer would have an extra fee of $150 and $200.
Most people transfer balances because they have the option of getting a lower interest rate on the new card. Saving money on interest will also allow them to repay the balance faster. Usually, a balance transfer is a small price to pay in exchange for 0% APR.
How to avoid them: There are credit cards with great balance transfer offers that also don’t charge an extra fee, but those are harder to find. Many require that you have a great credit score.
If you don’t qualify for a card like that, it’s ok to sign up for one with a balance transfer fee, as long as you attempt to pay off the card before the intro period ends. Some people hop around from one balance transfer offer to another, failing to repay the debt before the 0% APR offer ends.
Try to repay the card as soon as you can and do the math to see if the balance transfer is less than the amount you’d pay in interest.
With the amount of bills a typical consumer has coming in, it’s easy to forget and let one slip through the cracks. What’s a late fee or two in the grand scheme of things?
A late fee on a credit card often costs between $25 and $35. Utility companies and doctor’s offices might charge similar prices if you pay beyond the due date. Not only do late fees add up quickly, but they can also affect your credit score because they’ll be reported on your credit report. Multiple late fees can drastically decrease your credit score and affect your ability to get approved for new credit, such as a loan or mortgage.
How to avoid them: The easiest way to avoid late fees for any credit card is to set up autopay, which means every payment will be automatically deducted from your bank account on or before the due date. Usually, autopay takes at least one billing cycle to set up so make sure to check it manually until you’re sure it’s active.
You can also create automatic calendar reminders in your email program, cell phone, or budgeting apps that will ping you each month when your bill is due. If you get paper statements in the mail, you can also resolve to always pay the bill as soon as it arrives.
The bottom line
Fees are one of the biggest culprits in eating away at your finances, but they can be hard to notice. It’s easy to look at each fee individually and feel like the cost is negligible, but those expenses add up quickly. Like a cup of coffee every day from the local Starbucks, these fees can end up costing you thousands of dollars every year if you’re not careful.
Every interest payment, late penalty and balance transfer fee is chipping away at the things you really care about. If you’re trying to save up for an emergency fund, a vacation or to pay off debt, paying exorbitant fees is like wearing a ball and chain while trying to climb up a mountain.
Thankfully, hidden fees are mostly avoidable. If you research the companies you do business with, read the fine print and make smart decisions, you’ll save yourself a bundle of cash without having to do much more than read some boring legalese.