Common credit card fees and how to avoid them

By Emma Lunn

Using credit doesn't have to cost you. Although all cards will have some sort of costs and fees attached, most are avoidable, assuming you pick the right card and use it correctly.

You'll find your card's fees within your cardholder agreement.

"As with any form of credit, it is crucial that consumers be fully aware of the potential charges they may face, says Edward Ware, spokesman for debt charity StepChange. "This means familiarising themselves with the terms and conditions,"

Here are some common fees your card might charge you -- and some strategies for avoiding them.

Interest charges
Interest is charged on the money you borrow on a credit card. Different rates of interest may be charged for different types of transactions. For example, the card will have a purchase rate for normal purchases and another rate for cash advances. credit-card-fees

How to avoid it: The best way to avoid interest is to pay your entire balance on time. Credit cards normally come with an interest-free grace period of between 45 and 59 days. If you pay your balance in this time period, you won't be charged any interest at all. Cash advances, however, do not have grace periods, and the interest clock starts ticking right away. So it's best to avoid cash advances altogether.

Already buried in interest charges? You can freeze new ones for as long as two years by moving your debt to a balance transfer card with a 0 per cent introductory offer (although you will pay a balance transfer fee of around 3 per cent to do so).

Late payment fee
Your card will require you to make a minimum repayment each month, normally a percentage of the outstanding amount of the balance. If you don't make at least this payment on time, you'll be charged a late payment fee, normally £12.

How to avoid it: Avoiding late payment fees is simple: Pay on time. You can set up a direct debit from your bank account to pay the minimum, a set amount or the whole bill each month.

Over-limit fee
When you take out a credit card, you'll be set a credit limit, the highest outstanding balance you can have on the card. If you spend more than this on the card, you'll be charged a fee for exceeding your limit -- usually up to £12 per occurrence.

How to avoid it: Keep a check on your spending. Look at your statement each month and stop spending on the card if your next purchase will take you over your limit. If you find yourself constantly nearing your limit month after month, contact your credit card provider to request a credit limit increase. However, there's no guarantee your request will be honoured.

Annual fee
Some credit cards charge an annual fee. These cards tend to be at the premium end of the market, and you'll get certain perks in return for the fee.

How to avoid it: The majority of credit cards don't charge an annual fee so it's pretty easy to pick a card without this charge. Even if you want rewards, there are some fee-free travel rewards cards on the market.

Cash advance fee
Short on cash? If you use your credit card to take cash out of an ATM you'll be charged a fee for this. You're also likely to be charged a higher interest rate on this type of transaction.

How to avoid it: Use cash advances only in an emergency. If you need cash, use your debit card instead.

Be aware that there are certain transactions often treated as "cash withdrawals " by credit card companies. These include transactions on gambling websites and buying foreign currency.

Foreign usage fee
If you use your card abroad, you're likely to be charged extra for the privilege. Most card providers charge a foreign loading charge on both ATM withdrawals and purchases.

How to avoid it: Although they're rare, some cards don't charge for transactions abroad. Credit cards that fall into this category include Halifax's Clarity MasterCard, the Saga Platinum card (available for consumers over age 50) and the Post Office Credit Card.

Whichever fees you're trying to avoid, side-stepping them is only part of the credit picture. If you carry large amounts of debt, damaged credit will likely end up costing you more than any fee.

"Most importantly consumers must also be absolutely certain that they can repay the money they borrow," Ware says. "Spending on credit and failing to repay can quickly escalate and lead into problem debt."

See related: How to prioritise your debts, Understanding your credit card agreement: A five-step guide to the small print

Published: 21 May 2013