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How much does a credit card cost?
Credit card costs and fees can affect your bottom line.
Before you get a credit card, make sure you understand all the associated costs and fees. The most common cost you’ll encounter is an annual fee, but even no-annual-fee cards have associated fees. It’s not always easy to tell what those fees are and when you’ll face them.
How much does an annual fee credit card cost?
There’s a wide range of how much a credit card with an annual fee can cost. Generally, the more perks, features and benefits it has, the higher its annual fee. So, while a simple cashback credit card might run you $50 to $100 a year, a top tier travel card can reach as high as $500+.
A higher annual fee can net you a wealth of useful benefits that make up for the cost of the card. For example, the American Express AIR MILES Reserve Credit Card offers hundreds of dollars of statement credits on common travel expenses each year, as well as other perks such as access to luxurious airline lounges. The Scotia Momentum Visa Card, on the other hand, has a $39 annual fee after the intro period and simply offers a solid intro APR, solid cash back rewards, discounts on car rentals and purchase protection.
What are some other credit card costs?
Aside from an annual fee, credit cards can carry a variety of other costs, such as foreign transaction fees, or penalties for misuse. Here are some common fees you may encounter:
- Interest. If you carry a balance on your credit card, you’ll need to pay off the interest that accrues as a result. This interest is determined by your card’s purchase APR.
- Foreign transaction fees. A card may charge a percentage of your purchase toward a transaction made outside of Canada. This is usually around 1-3% of the purchase.
- Balance transfer fee. If you transfer a balance to a new credit card, you may have to pay a flat rate or percentage of the amount transferred.
- Cash advance fee. Some cards charge a flat rate or percentage fee based on the cash advance amount you take out.
- Late payment fee. If you fail to make a monthly payment on time, you can expect a penalty fee. These are typically around $25 to $38 tacked on to your balance.
- Finance charge. This is the interest that accrues if you don’t pay your balance in full each month.
- Over-limit fee. You might get slapped with an over-limit fee if you make a purchase that pushes your account over your credit limit.
- Returned payment fee. Some cards may charge a penalty fee if a payment you make to your card is rejected or returned for any reason.
How to keep costs down
- Make your payment on time every month
One way to avoid interest fees is to pay your balance in full each month. It can help to calculate all of your finances before making any purchases on credit to ensure you can pay it off.
- Make payments earlier than the due date
Late payment fees are usually around $25-$38 depending on your issuer. Another fee that comes with credit card use is a bounced cheque fee, which can be as high as $50. This happens when you send out a cheque with insufficient funds in your account. To avoid these fees, make your credit card payments a priority and pay them off earlier than their due date.
- Avoid cash advances.
A cash advance fee will appear on your monthly statement if you withdraw money from an ATM. There is usually a flat fee charged in addition to a percentage of the amount withdrawn. Avoid making a cash advance if at all possible.
- Always check the credit available in your card
When you make a purchase, make sure you have the credit available on your credit card. If you go over your limit, you will receive an over-limit fee, usually between $25 and $35.
- Review your card rates and fees ahead of time.
Interest rates vary from card to card, but if you miss several payments your card might revert to a baseline rate. This could be a much more punishing rate than your initial APR and can start racking up the interest even faster.
- Transfer your balance.
If you’re a disciplined credit card user, transferring your existing credit card balance to a balance transfer card can save you a lot of money in interest.
Compare credit cards with no annual fee
Getting a credit card with no annual fee is a good way to keep your credit card costs down. That said, they still have associated fees to watch out for. Compare your options to find a card that’s right for you.
Bottom line
If used correctly, credit cards are an effective means of improving your financial flexibility and earning rewards. To make sure a credit card is more of a help than a hindrance, keep your costs down by using your credit card responsibly.
Check out our guide on how to avoid credit card fees to find out how to save even more.
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