Let's normalize asking our friends: “How much do you normally pay for a credit card?” Credit cards help manage your expenses, build credit, and earn rewards—but they also come with costs that often sneak up on you if you're not careful. The more you know, the more easily you can steer clear of excess credit card costs.
Whether you are a seasoned credit card user or are considering opening your first card, it’s important to understand how much a credit card actually costs you. Spoiler alert: It’s not just about how much you swipe at the checkout.
From annual fees to sneaky interest charges, the price tag of having a credit card can vary depending on how you use it and what type of card you have. We'll break down what you can expect to pay and how to keep your costs low while still enjoying the benefits of credit cards.
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How much is a credit card? Here are 6 costs to consider
So, how much does a credit card cost? The answer depends on the card you choose, how you use it, what kind of perks you want, and any specific terms.
Credit cards range from being completely free (if you pay off your balance every month and avoid fees) to quite expensive when interest charges, annual fees, and other penalties kick in.
Below, we’ll outline the typical costs to expect in a credit card. We'll also use examples to illustrate the fees—but remember that you can find all the rates, terms, and conditions for each credit card in your contract. It's essential to take a close look at the rules before committing to a specific credit card.
1. Annual fees
One of the most apparent costs is an annual fee, which is charged simply for having the card. While some credit cards don’t have annual fees, others—especially those with high-end perks like travel rewards—can charge anywhere from $95 to $550 or more per year.
If you’re paying for a card with an annual fee, make sure the benefits outweigh the cost. Otherwise, you might be better off with a no-annual-fee card. (Here’s something that could help you in making your decision: Credit Card Annual Fee: What It Is and How to Decide If It’s Worth It)
2. Interest charges (APR)
When you don't pay your balance in full and carry an amount from month to month, you’ll be hit with interest charges, also known as annual percentage rate (APR). The average APR ranges between 15% and 25%, depending on your credit score and the card's conditions.
For example, if you have a balance of $1,000 and a 20% APR, you could end up paying an additional $200 in interest over the year if you don’t pay it off. To avoid these costs, pay off your balance in full every month.
3. Late payment fees
If you miss a payment, you’ll likely incur a late payment fee, which can range from $25 to $40 for each missed deadline. Not only that, but missing payments can also trigger a penalty APR, where your interest rate can skyrocket to 29.99% or more, making your card much more expensive to maintain. Setting up automatic payments can help you avoid these unnecessary costs.
4. Foreign transaction fees
Are you a frequent international traveler? Keep an eye out for foreign transaction fees because they can add up quickly. Many credit cards charge a fee—typically 1% to 3%—for purchases made outside the U.S. So, if you’re using your card on vacation in Europe and spend $1,000, you could end up paying an extra $30 in fees. There are cards specifically catered for international use that waive these fees, so consider looking into those for your next vacation.
5. Balance transfer fees
Some people use balance transfer cards to consolidate debt and lower interest rates. However, these cards often come with balance transfer fees, usually 3% to 5% of the amount transferred. So, if you’re transferring $5,000 of credit card debt, you could be charged up to $250 in fees upfront. Be sure to calculate whether the lower interest rate outweighs this cost.
6. Cash advance fees
Taking out a cash advance—borrowing cash against your credit card’s limit—comes with hefty fees and interest. Most cards charge a cash advance fee of 3% to 5% of the amount borrowed, and the interest on cash advances tends to be higher than regular purchases, often starting immediately. For example, a $500 cash advance could cost you $25 upfront, plus interest, making it a costly way to access cash.
Tips to reduce your credit card costs
Instead of asking, “Why are credit cards so expensive?” a better question is, “How can I make them less expensive?” We have answers.
With some smart credit card use strategies, you can minimize what you pay and keep more money in your pocket.
Pay your balance in full each month
This is the golden rule when it comes to credit cards. By paying your balance in full each month, you can avoid interest charges altogether. If you consistently pay off your debt until the due date, you won’t have to worry about APR, and your credit card can essentially be free to use (minus any annual fees).
Choose a no-annual-fee card
If you’re not using the perks that come with a high-end rewards card, consider switching to a no-annual-fee card. These cards often still offer rewards and can save you $100 or more annually. Just make sure the card aligns with your spending habits and that you’re getting something in return, even without paying a fee.
Avoid cash advances
Cash advances are one of the most expensive ways to use a credit card. Avoid taking out cash unless it’s an absolute emergency. If you need cash frequently, consider other options like personal loans or checking account overdraft protection.
Set up automatic payments
To avoid late fees, set up automatic payments to ensure you never miss a due date. Even if you’re only paying the minimum that month, automatic payments can save you from the extra hefty fees and the damage to your credit score that comes with missing a payment.
Look for a card with no foreign transaction fees
If you travel often, it’s worth getting a card with no foreign transaction fees. Many travel credit cards offer this perk, and it can save you a significant amount when you’re swiping abroad.
How much does a credit card cost: Bottom line
Credit cards can either be a cost-effective tool or an expensive way to manage your finances, depending on how you use them. By understanding the different costs—such as annual fees, interest charges, and foreign transaction fees—you can make smarter decisions and keep your expenses down. Remember, the key is to always pay off your balance, avoid unnecessary fees, and choose a card that fits your spending habits.
FAQs
How much does a credit card cost per year?
It depends. Some cards have no annual fee, while others can charge anywhere from $95 to $550 per year.
Is there a fee for opening a credit card?
No, most credit cards do not charge an opening fee, but certain cards might have an annual fee that kicks in right away.
How much is the credit card fee on purchase?
There’s no fee for making a purchase with a credit card unless you’re buying in a foreign currency, in which case you might face a foreign transaction fee of 1% to 3%.
Who pays credit card transaction fees?
Merchants typically pay credit card transaction fees (called interchange fees), which can be around 2% to 3% of the purchase price. These costs can be indirectly passed on to the consumer in the form of higher prices; for example, when a store offers lower prices when you pay in cash.