Credit Card Fees: The Good, the Bad and the Ugly

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It's easy to hate fees. To many, they can be the rain that ruins an otherwise perfect day -- or in this case, a credit card. However, are these fees really the big bad wolf consumers should be afraid of? The answer depends on how you approach them. This guide will arm you with the information necessary to understand when fees are or aren't a necessary evil.

Annual Fees. It may be hard to convince oneself why paying a membership fee for a card could ever be worthwhile. Some credit cards may have annual fees over $400. So, why would anyone ever agree to such a deal? The answer: net value. As long as you are getting a value out of your credit card that is greater than what you are losing by paying the annual fee, you will be coming out ahead -- in other words, a net gain in value. For example, Amex Platinum cardholders who can take advantage of the lounge access and airline fee credit benefits will be easily getting a value of over $600 out of their little piece of plastic -- which is much higher than the card's $450 annual fee.

Transaction Fees. These are the costs associated with using the card for things such as balance transfers, cash advances and foreign transactions. The fees here are also not always to the detriment of the cardholder. As with annual fees, it all comes down to doing the math and making sure you're coming out ahead in the end. Recently, while traveling through a Paris airport, I noticed the exchange rates there were 1.28 USD per 1 Euro. Now, everyone knows that airport exchange rates tend to be unfavorable. How would I fare using a credit card with a 3 percent foreign transaction fee? Running through Mastercard's tool, you can see I'd be getting an exchange rate of 1 Euro per 1.12 USD -- a 12 percent savings!

Don't let the above two points fool you -- there are some credit card fees you should never pay. The two fees outlined below are the worst, and most common, offenders.

Interest. As you look over any credit card agreement, one of the most prominent features is the APR (interest rate). This can be thought of as the fee you pay for lending money from a bank. If you pay your balance in full each month, you will avoid paying any interest. If, however, you do not pay off any amount of money month-to-month, it will begin to incur interest. To illustrate how devastating interest can be, take the following example. Recently, it has been shown that it would take over 30 years to pay of a $2,000 balance using minimum payments. If we took away all interest from that equation, it would only take 9 years to pay down that balance -- a 21 year difference!

Penalty fees. If, for whatever reason, you miss a payment due date, you can incur a charge of up to $35. All it takes is making the minimum payment in order to avoid this charge. There is almost no reason to ever miss your credit card payment, if you have the funds to cover it. The payment due date is federally mandated to be on the same day every month -- that way you know when to expect it. Some credit cards (mainly those aimed at new credit card users) will waive the first late fee -- however, know that missing a payment completely will cause headaches that can hurt more than a $35 fee -- from damaged credit ratings to increased interest rates.