How Much Does Your Credit Card Cost You?

While annual fees may come with the territory for most credit cards, the other costs involved could be costing you a lot more than you realise.

Providers are required to outline fees and additional costs in the fine print and while the government’s banking reforms will make it easier for new cardholders, currently there are still a lot of unexpected costs that can arise.

These expenses can come up in any number of situations, but the ones below are some of the most common situations where costs can get out of hand and really show just how expensive some kinds of credit card use can be.

The Cost Of Making Minimum Repayments

A quick and easy way to estimate the cost of only making minimum repayments it is to use the interest rate to calculate how much you may be paying each year.

A $2000 purchase made on a card with a rate of 16% p.a., for example, would cost around $320 per year in interest until it was paid off. While this expense will drop with every payment, with so much money going towards the interest instead of the purchase, this basic estimate could end up being a big motivation for making larger payments.

Even with a low interest credit card it would take years to pay off anything with the minimum repayment option, so it is better to add a little bit extra onto the repayment amount so that interest is covered and the balance can be cut down quicker.

Late Payment Fees

Every time you do not pay your credit card bill when the statement is due you could be getting lumped with an extra fee for late payments.

A report from Choice has found his fee to be anywhere from $5 to $25, which may be charged as a one-off fee or daily until a payment is made.

Over Limit Fees

If you put too much on your credit card and have a flexible provider or plan in place, then you could end up paying dearly for your purchases. While over limit fees range from $0 to $30, the costs can be much more if you do not make a payment right away.

Credit Card Surcharges

The Reserve Bank of Australia has called for a closer look at credit card surcharges, but they are still an issue that should not be dismissed.

These costs vary depending on the card processors, but the RBA has reported an average of 1.8% for MasterCard, 1.9% for Visa, 2.9% for American Express and 4% for Diners Club, with the highest surcharges tending to be from online merchants.

Just one of these additional fees could end up making your credit card feel more like a responsibility than a convenience, but bit of knowledge can go a long way in helping you cut down card costs so that credit is an advantage instead of an expense.