By Dr. Kavita
Anyone who has been using plastic money for even a short time already knows that there are several kinds of credit card fees that are involved with it. But not all of the credit card users understand what these fees stand for and why and how they are charged. Let us take a quick look at some of the fees and then try to understand how they are calculated and applied to your credit card.
APR or annual percentage rate
This is by far the most important type of credit card fees that every user should understand. Basically APR denotes the rate of interest that you will be charged in case you have some balance amount outstanding on your credit card bill. While it is denoted as annual interest, yet the deductions happen on a monthly basis. So if you have opted for a credit card that has 2% APR, and you have an outstanding payment balance of $2,000 towards the credit card bill month of January, then you will be charged APR fee of $40. So now the total due for month of January is $2,040.
Balance transfer fees
This is another equally important kind of credit card fee that you should know about. Balance transfer fees are applicable only when you shift your outstanding balance on a credit card that is currently in use to a new credit card.
There are many offers that credit card companies love to attract you with, like 0 % balance transfer fees and low balance transfer fees etc. But remember that the process is a bit complicated and not as simple as you would be inclined to think.
The basic idea behind transfer of balance to a new card is to save yourself from the high APR being charged every month on your current card. But you should read the fine print closely because the 0 % interest rate offer is not going to last forever. Your new card will also charge you a certain APR 9which could most of the times be higher than the old card) in about 6 to 12 months after completing the balance transfer. So use this option only if you are sure that you can indeed complete the dues within the interest free offer period on the new card.
Cash advance fees
Cash advance fees are those fees charged for every cash withdrawal that you do using your credit card. You should realize that when you withdraw money from your credit card you are actually taking a credit/loan. That money is not in your bank account and you are actually asking your credit card company for a loan. So it is obvious that the money will be available to you only at a certain rate of interest.
There are two ways in which these fees are calculated. The first is based on the rate of interest applied on the total amount of cash withdrawn. The second method is to charge a fixed amount irrespective of the cash amount. The company will either charge you a rate of interest for amount withdrawn or a fixed amount, whichever of the two turns out to be higher.
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