A credit card is a great thing to have if you use it responsibly. In order to do so, you need to understand how a credit card works and the fees that come with it.
Payment is more than just settling what you spent with your purchase – it also involves the fees that come with the convenience of using your card.
Whether you’re still thinking of applying for a credit card or you’re already a first-time user, you need to get acquainted with how credit card payment works, and the fees included.
- Annual fee
Most banks charge annual fees for credit cards, although there are some that waive them for the first year when they are enticing people to avail of their cards. Maybe you’re one of the lucky ones who do not have to pay for the first year, but eventually you will have to shell out for it afterwards.
Annual fees range from PHP 300 to PHP 6,000, depending on the type of card you have. The rule is that the higher the benefits, the higher your annual fee is. This is true especially with premium cards, which have exclusive benefits.
- Finance charge
Failing to pay your balance for the previous month is costly because of the finance charge, which adds interest to your total amount due. The monthly interest rates go from 2.00% to 3.54%. Pay your balance in full in order to avoid the finance charge.
- Over-the-limit fee
If your balance goes over the credit limit, the bank may charge you a fee ranging from PHP 500 to PHP 1,500. However, there are some cards that do not add this charge. What happens is that when you use your card and you go over your credit limit, the transaction will be automatically declined.
- Cash advance fee
Most credit cards offer a cash advance option, in which you can withdraw against your card’s limit. While this is certainly convenient, keep in mind that interest rates for cash advances are higher than regular ones. You have to pay around 5% of the amount that you borrowed. It also has no grace period, so you should settle it as soon as you can so you won’t go into debt.
These fees cannot be avoided especially if you don’t pay in full. However, picking credit cards with lower interest rates and lower or no annual fees can help keep the fees in check. Of course, these cards may have less benefits and features than those with higher interests, but this is where enjoying within your financial means comes in.
Applying for a credit card with a lower credit limit can also curb your spending. If you have a monthly income between PHP 10,000 or PHP 15,000 or gross annual income of at least PHP 120,000, you may qualify for a low-income credit card.
If you find yourself paying for these fees (except for the annual fee) on a regular basis, it may be one of the signs that your credit card use is out of control. Don’t make credit card debt a part of your expenses and take charge of your finances if you find yourself always shelling out for extra fees.