The fees that quietly grow your debt

Resources · Debt basics · 5 min read Building

Key points

• Credit card fees and loan fees are separate from interest, but they often land on the same balance.
• A fee added to a card balance can attract interest, so it keeps costing you.
• Most fees are triggered by something specific, which makes plenty of them predictable.
• Your statement lists fees separately, so they’re easy to spot once you look.

Fees and interest are different

Credit card fees are sneaky. Not because they’re hidden, but because each one looks too small to bother about.

Interest is the ongoing price of borrowing. Fees are one-off or regular charges for particular things, like paying late, taking out cash, or just having the account open.

Both grow your debt. Interest gets the spotlight because it’s a big percentage printed on everything. Fees slip by.

Common credit card fees and other charges

Names, amounts and rules differ between countries and products. But the same types turn up again and again.

The late payment fee is charged when your minimum payment arrives after the due date. An annual or monthly account fee is a regular charge just for having the card or account.

The cash advance fee hits when you use a credit card to withdraw cash or pay for something treated like cash (cash advances: why they cost more). A higher interest rate often applies to those amounts as well, sometimes with no interest-free period.

Where it exists, an over-limit fee is charged when your balance goes past the credit limit. A foreign transaction fee adds a percentage to purchases in another currency or from overseas sellers. A balance transfer fee is a one-off charge, usually a percentage of the amount you move.

There are a couple more. A dishonoured or returned payment fee is charged when a payment bounces. And some loans carry establishment or early repayment fees at the start or the end.

Your account terms list which fees apply to you, and how much each one is.

How fees grow into more debt

Once a fee lands on a credit card balance, it’s part of what you owe. If the balance isn’t cleared, that fee attracts interest like everything else.

Here’s an example. Say a single $35 late fee is added to a card with a 22% APR. Interest is charged monthly at 22% ÷ 12 on the balance, and nothing is paid off that $35 for a year.

After 12 months, the $35 has become $43.53. So the fee has cost you $8.53 more than its sticker price.

Now picture a whole year of small fees on the same card. These amounts are illustrative:

Leave that $220 on the card for another year at 22%, charged monthly, and it grows to $273.60. That’s $53.60 of interest on fees alone. The same maths works in any currency.

Not one of those charges looked big by itself. That’s the trap.

Spotting fees on your statements

Fees are usually listed apart from purchases and interest, so a quick monthly check catches them. Here’s a simple routine:

1. Search the statement or transaction list for the word “fee”.
2. Add up the fees for the last few months. The total can be a shock.
3. Note what triggered each one: a late payment, a cash withdrawal, an overseas purchase.

Once you know what sets each fee off, a lot of them become predictable. Some become avoidable.

Ways people cut credit card fees

What works depends on how you use your accounts. A few approaches come up often.

Automatic payments of the minimum (or more) can help you dodge late fees. Some people would rather pay manually so they control the timing, and that’s fine too. If that’s you, a calendar reminder a few days before the due date does a similar job.

For cash, a debit card drawing on your own bank account usually avoids cash advance fees and the higher rate that comes with them.

Account fees deserve a hard look now and then. Some people weigh up whether an annual fee is worth the features. Others close accounts they no longer use, though in some systems closing an account can affect your credit score.

And keep a buffer below your limit, so one small charge doesn’t tip you over.

If fees are piling up because you can’t keep up with payments, free debt help is available, and it’s confidential.

Common questions

Do credit card fees get charged interest?

Often, yes. A fee added to the balance becomes part of what you owe. If the balance isn’t cleared, it attracts interest like everything else.

What fees do credit cards charge?

Common ones are late payment, annual or monthly account, cash advance, over-limit, foreign transaction, balance transfer and returned payment fees. Names and amounts differ between countries and products.

How can I avoid late payment fees?

Some people set up automatic payments of at least the minimum. Others prefer a due date reminder a few days early. It comes down to how you like to manage the timing.

Try it

The true cost calculator shows what a purchase or fee really costs once interest is added. To see all your debts together, find your Freedom Date.

General information only, not financial advice. Your situation is your own.