Credit card companies often nickel and dime their customers with extra costs, from late fees to balance transfer and foreign transaction charges. All of these things can add up and lead you to question whether having a credit card is worth it at all. It’s important to be mindful of the hidden fees that your credit card company slips into its terms, but there are some ways that you can actually benefit from certain charges. Here are some tricks that you can use to turn annoying credit card fees from a negative into a positive.
Cash Back Rewards
If you’ve opted for a credit card that offers cash back rewards, you may have noticed that it comes with an annual fee. The trick to combating this is two-fold. First, ensure that you squeeze every single cent out of the company’s reward system and check to see exactly what you get back from the merchants you regularly use. For instance, some credit cards offer a higher cash back percentage if you shop online through their links. If you were planning to buy online anyway, you may as well reap the benefits of earning more money. The goal is to make more money from the cash back system than you pay for the card’s annual fee. As the cash back rewards add up, you can end up making significantly more than the credit card company’s yearly charge.
Second, you must pay off your balance on time with this method, otherwise any savings that you earn will be eaten up by interest charges. Use your rewards credit card to only pay for things that you’ve budgeted to pay cash for or purchases that you can easily pay off each month.
If you’ve ever traveled abroad and used your credit card, you may have been surprised to find a bunch of foreign transaction fees on your next statement. These fees typically range from 1 to 3 percent and are charged for each and every purchase made while you’re out of the country. To recoup the extra charges, carefully look at the travel benefits that your credit card offers. For instance, if your card issues an airline credit that covers baggage fees, flight upgrades, or in-flight meals, be sure to claim it as soon as you get back from your trip. Before you leave on your next international trip, find out if your credit card company stipulates whether you have to actually use your card inside the airport to be reimbursed for baggage fees and covered flight expenses — it may be sufficient to only purchase your ticket with the credit card. It’s common for travel benefits like these to expire each year, so you don’t want to put off making your claim.
Another way to cancel out annoying foreign transaction fees is to take advantage of any two for one deals that your credit card offers. Some cards are partnered with hotels — including those overseas — that will allow you to add an additional person to your room reservation at a big discount or for no additional fee. You may be limited to using a specific list of hotels, but the savings can be worth it.
Credit cards that offer free flight mileage are quite popular, but they often come with sneaky, annoying charges or annual fees. Still, if you can manage to structure your purchases so that you get the maximum amount of points and miles, you could easily end up with enough miles to travel out of the country or take several domestic trips during the year and negate the fees and charges. For instance, if your credit card stipulates that you’ll get 25,000 bonus miles for spending $1,500 within three months of signing up, you can get free airfare that will be worth a lot more than the annual fee the company charges. Even when you account for taxes and service charges to redeem the miles, that doesn’t top the cost of a round-trip ticket to the destination of your choice.
Comparing Interest Rates
In some cases, the cost of using your credit card — fees, charges, and all — is much less than financing a loan or purchase by other means. Compare the interest rates and terms, and see if it’s favorable to use your credit card to make a purchase instead of using a store card or in-store financing. The same applies to balance transfers: even when you account for the balance transfer fee that one card charges, using it to carry the balance of another card could save you money in the long run.
Likewise, making payments on loans with your credit card is a possible way to save money. Let’s say you’re one of the millions of people in the country who owes money on a student loan. If your loan guarantor accepts credit card payments and you use your card, you can potentially earn cash back or use your accumulated cash back rewards to make your payments. If you happen to have a credit card from a company that will allow you to write a check against your account, that’s another option to make higher interest payments and reduce your debt.
“Arbitrage” is just a fancy way of describing a method of making free money from your credit cards. Most credit cards charge an interest fee, but you can profit off that by taking a loan from your card and depositing the money into a high-yield savings account. As long as you pay the minimum each month, you’ll make money on the difference. Is this tactic illegal? Absolutely not! In fact, this is the way that banks make money off their customers. However, arbitrage is risky because if you fail to make the minimum payment, you’ll get hit with additional fees and charges that will negate your efforts. For those who are able to stay organized, are prudent about making their credit card payments, and know how to be careful with money, arbitrage can be a smart way to increase your savings. For the best results, choose to do this with your credit card that has the lowest interest rate — you’ll end up pocketing more money if your card charges a low fee.