Credit cards offer a great solution to our temporary financial struggles, but they can lead to serious personal debt crisis if mismanaged. No-fees credit cards help to keep the costs of your borrowing down and in general reduce your debt burden. Credit cards are a popular way to offset financial difficulties in between paydays. Being liquid at all times can be a difficult achievement for most households.
During times of financial difficulty, which most average Americans will find themselves in from time to time, credit cards come in handy in allowing consumers to make purchases. According to a survey by CNBC, 55% of Americans carry credit card debt, with 10% having over $5000 in average monthly debt. This convenience however comes at a significant cost. The interest charged on the credit card debt, as well as other fees that apply can significantly increase the holder’s debt levels. A number of credit companies offer no-fee credit cards to reduce the repayment burden of holders. Going for reputable no-fee credit cards is a great way to keep your debt down while enjoying the perks that the card offers you.
The Credit card fees loophole
There are up to ten types of fees that can apply to a single credit card simultaneously. These include annual fees, cash advance fees, expedited payment fee, over-the-limit fees, foreign transaction fees and late fee among others. Although these are usually set very low, they can accrue to very high cumulative figures over a long time. A no-fee credit card is one that does away with one or more of the more common fees. Getting a no-fee credit card should help to offset the amount that a holder has to pay back to the issuer.
Reasons for Choosing a No-Fee Credit Card
- Keeps your debt low The lack of multiple fees on your credit card reduces your owed amount ever so slightly, since the compounded costs are eliminated. While rare, some institutions offer zero-interest cards, which is a big relief given that interest rates on credit cards can be as high as 20%.
- Higher chances of approval Financial experts believe that lenders are more likely to give a no-fee credit card to people with low credit rating since the repayment burden is lower. Usually, no-fee credit cards have limited applicability, meaning they cannot be used to purchase certain items or in certain outlets. They still have high utility for most day-to-day purchases such as groceries and home bills.
- Beneficial to Your Credit Rating The applied fees go into your financial records, and credit bureau use these figures to generate your credit report. If your utilization rate is high due to high fee application, your credit rating suffers, affecting your ability to secure other types of credit.
- Carries lower risk One way that credit companies get people to use their credit cards is by applying annual fees. For example, if you are charged $150 annually for a credit card, spending $100 on the card will seem like a very uneconomic deal for the holder. Holders may therefore go out of their way to increase their credit usage. If you are not paying an annual fee, you will only spend on important expenditure.
Keeping Your Credit Fees Down
Getting a no-fee credit card is of course the most practical way to keep your credit card costs down. No-annual fees cards are among the most popular. It is however important to remember that other fees are likely to continue applying. The fees are applied as a means of profit making for the issuers. This means that many issuers will try to recoup the concessions in fees by moving it to other areas. For example, a credit card with no annual fees will still charge late fees, transaction fees and interest. Being aware of all the applicable fees is the best way to protect yourself from financial trouble as a result of accrued fees.
Understanding the rates and way that interest and fees apply is important in managing your credit card debt. Ask for full information from your credit card issuer to enable you calculate your financial obligation on every transaction that you make using your credit card. Many credit card holders are complacent with their repayments, and often find themselves paying unnecessary penalties and transaction fees. In order to minimize your repayments, you should stay within your monthly limits, make your payments on time, and go for large unitary payments rather than multiple small ones.
Resources:
1. https://www.nerdwallet.com/blog/credit-cards/pros-cons-0-interest-credit-card/
2. https://www.lifestyledaily.com/?id=L16&artid=259&preview=1
3. https://www.cnbc.com/2019/05/17/55-percent-of-americans-have-credit-card-debt.html
4. https://thesmartwallet.com/credit-cards-101/?articleid=12183
5. https://www.thebalance.com/common-credit-card-fees-960254
6. https://thepointsguy.com/2016/05/why-you-should-get-no-annual-fee-card/
