Calculating costs

How much does a credit card cost?

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Millions of us rely on our credit cards whether it’s to make ends meet each month, help spread the cost of larger purchases, or simply just as a safe and secure way to pay.

However, the amount you pay for your credit card will depend on the kind of card it is as well as how you use it. For example, if you clear your balance in full every month, you will avoid paying any interest on what you owe, whereas if you only make the minimum payments, interest charges can soon mount up.

Here, we explain how much your credit card could cost you.

Credit card fees

Some credit cards, particularly gold and platinum cards which come with additional benefits such as travel insurance or concierge services, charge an annual fee which can vary widely depending on exactly what’s on offer. Bear in mind that some cards waive this fee for the first year, but even if that is the case, make sure you know exactly how much you will have to pay in the second year and beyond.

Interest charges

If you don’t clear your balance in full at the end of every month, you will be charged interest on whatever you still owe, unless you have a card which offers a 0% introductory rate on purchases or balance transfers.

The actual amount of interest you will have to pay will depend on which card you have, but the typical annual percentage rate (APR) charged on credit cards is a considerable 18%. You should therefore try and pay off what you owe as soon as possible, or – if you do accumulate a balance – consider moving it to a deal which offers a lengthy 0% rate on balance transfers.

Bear in mind that, if you also make purchases on a 0% balance transfer card, you may still be charged interest on these, even if you clear that cost every month.

Similarly, if you take cash out of an ATM on your credit card (which is known as a ‘cash advance’) you will also still be charged interest of up to around 28%, even if you clear the balance at the end of the month.

You will also be hit with a cash withdrawal fee of around 2% of the amount you have taken out of the ATM.

Additional fees

There are additional fees you need to watch out for when using your credit card, particularly if you plan to use it overseas.

Most credit card providers charge an exchange rate transaction fee of around 2.99% each time you use your card abroad, in addition to fees of up to 3% on every time you make a withdrawal from a cash machine.

There are also interest charges on all cash withdrawals, typically around 28%. That means even if you have a card which has a 0% introductory rate on spending, you can still find yourself hit with charges.

If you also make purchases on a 0% balance transfer card, you may still be charged interest on these.

Balance transfer charges

If you are switching a credit card balance from one card to another, there will usually be a balance transfer fee to pay, which is usually about 3%, so remember to factor this in before moving.

In most cases however, even once the transfer fee has been factored in, it will still prove more cost effective to move to a card with a 0% introductory rate on balance transfers than to leave your balance languishing on a card charging steep rates of interest.

There are also an increasing number of credit card deals which charge more competitive balance transfer fees, so keep an eye out for these.

Shop around for the best deals

If you are currently paying a typical APR of around 18% on credit card debt, then it’s time to see if you can get a better deal elsewhere. Shop around for the longest 0% terms on balance transfer cards. But bear in mind you won’t be able to transfer debt to a card operated by the same provider.

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