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U R @: Education Center : Understanding the Fine Print : The Hidden 3 Percents: Three transactions that will cost you 3%
THE HIDDEN 3 PERCENTS: THREE TRANSACTIONS THAT WILL COST YOU 3%
Buried in the Terms and Conditions of your credit card are a few fees you may not notice until too late. They are balance transfer fees, cash advance fees, and international transaction fees, and each will cost you around 3%, depending on the transaction.
Unless you receive a special no fee balance transfer offer that waives the transaction fee, most credit cards will charge a 3% balance transfer fee. Fortunately, this fee is easily offset when you take advantage of 0% balance transfer offers, as you will only be charged 3% during the 1 year balance transfer period, compared to a standard APR of up to 20%. However, if you are transferring a balance from a credit card with a 17% interest rate to a credit card with a 14% interest rate, the 3% fee will basically eliminate your savings.
Another factor that can reduce the expense of a balance transfer is a fee cap. Many credit cards have a maximum balance transfer fee of $75. Therefore, if you transfer a balance of more than $2,500, the 3% fee will be reduced. For example, transferring a $5,000 balance will cost $75, or 1.5%.
Credit card cash advances are expensive. Period. To begin, cash advances have their own, higher APR. This rate if often 10 percentage points higher than your regular APR. On top of the cash advance APR, there is a standard 3% cash advance fee. However, unlike with balance transfers, there is no maximum fee and a minimum fee. Generally, the minimum fee is about $10. Therefore, if you only take an advance of $100, you will get hit with a whopping 10% cash advance fee.
While there is no way to get around the 3% cash advance fee, there are two ways to get around the cash advance APR. One way is to use a 0% balance transfer. This, of course, will cost another 3%. However, the 3% transfer fee is much easier on the wallet than a 27% cash advance interest rate. The second way to get around the high cost of cash advances is to apply for a credit card that offers a 0% rate on cash advances. While these offers a few and far between, they do exist.
The third hidden 3% fee is tacked onto international transactions. However, there are a number of ways to avoid this fee. For example, book your hotel via a US based travel agency or website, use traveler’s checks or use your debit card to withdraw cash. Also, be sure to check up on the exchange rate your credit card offers. You may get a better rate than you would from a currency exchange desk or you may get a worse rate. However, if your credit card offers a competitive exchange rate, this may offset most of the 3% foreign transaction fee.
Credit card companies are required to disclose all fees to consumers. However, these disclosures are generally buried deep in the terms and conditions. Being aware of these fees is half the battle; avoiding and minimizing them is the more important half.
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