How to avoid credit card interest and fees
Types of fees, how interest works & more
There are several potential charges you should be aware of when borrowing on a credit card. These range from interest on unpaid debt to fees on balance transfers, overseas spending and cash withdrawals. This guide explains when you might be charged these and how you can avoid them.
Always clear the balance on your credit card IN FULL each month to avoid paying interest. Set up a Direct Debit to ensure you do this.
If you can't repay in full, but want to use a credit card, make sure you make at least the minimum repayments each month to avoid expensive interest.
A quick overview of credit card fees and how to avoid them
There several common fees and charges you may come across when borrowing on a credit card, but most of these can - and should - be avoided:
Interest – this is usually charged if you don't clear your balance in full each month (unless you have a 0% interest card). It's typically around 25% Annual Percentage Rate (APR), but it can be much higher.
How to avoid: Pay off your balance in full each month.Late payment fees – you may be charged up to £12 if you don't make at least the minimum monthly repayment.
How to avoid: Set up a direct debit to automatically pay the minimum each month.Cash withdrawal charges – many providers charge you to withdraw cash from an ATM, typically at least £3 each time. Plus you'll be charged interest from the moment you take it out.
How to avoid: Never use a credit card to withdraw cash.Foreign transaction fees - most credit card providers charge a non-sterling transaction fee of around 3% each time you use your card abroad.
How to avoid: Get a specialist credit or debit travel card for spending abroad.Over-limit fees - these may be charged if you go over your agreed credit limit.
How to avoid: Don't spend more than your credit limit.Annual or monthly fees – some credit cards, particularly the more premium rewards cards, charge a fee just for having the card and its perks.
How to avoid: Choose a fee-free credit card without the perks.
Credit card interest and fees and how to avoid them
Most credit card fees are avoidable. The key is to use your card carefully and make repayments on time.
If you think you’ll miss a payment or are struggling with debt, you should contact your provider as soon as possible as they may be able to help. There are also a number of organisations offering free debt counselling - find full guidance in our Debt crisis help guide.
Avoid interest by paying off your balance IN FULL each month
If you don’t pay off your credit card balance in full each month, you’ll usually be charged interest on what you owe. Interest typically starts accruing a few weeks after your statement is issued.
The rate you're charged is called the Annual Percentage Rate (APR). It's often around 25%, though it can be higher, especially on cards aimed at those with poorer credit histories.
Your card provider may charge different APRs for different types of borrowing. For example, you might be charged one rate for debt from purchases, and another rate for balance transfers.
Some cards offer an introductory 0% interest period on purchases, letting you spread the cost of essential everyday spending without paying interest, provided you make at least the minimum monthly repayment. For more details see our 0% purchase credit cards guide.
How to avoid: Repay in full and on time. Set up a Direct Debit to pay off the full balance each month. This is the only guaranteed way to avoid interest charges.
Repay less than the minimum and you'll usually be charged a fee
Each credit card comes with a minimum repayment amount – usually the higher of a small percentage of your outstanding debt or a fixed amount, such as £25. This is the least you must repay each month.
If you pay less than the minimum repayment, you'll usually be charged a late payment fee (up to £12) and the missed payment may be recorded on your credit report.
If you can afford to, avoid paying only the minimum each month. Doing so can leave you in debt for years and significantly increase the overall cost of borrowing, as our Minimum repayment calculator shows.
How to avoid: Set up a direct debit for at least the minimum repayment. If you can afford to, repay more than the minimum each month to reduce interest and clear your debt faster.
Don't withdraw cash - it can be extremely costly
Many card providers will charge you a fee for taking out cash from a cashpoint or ATM, which is typically 2%-3% of the amount you've withdrawn (with a minimum of £3 each time), so it's best avoided.
Cash withdrawals (also known as cash advances) are often treated differently to other card transactions – you'll usually start paying interest immediately (sometimes at a higher rate), which continues until the debt is repaid.
How to avoid: Never withdraw cash using a credit card. It’s expensive and can be a red flag to lenders – so could impact your ability to get credit in future.
Beware of fees when using your card abroad
When you use your card to make a payment outside of the UK, card providers usually get a virtually perfect exchange rate – though they'll often add a non-sterling exchange fee on top, typically around 3%. So £100 worth of Euros on the day will cost you £103.
You may also incur fees for withdrawing cash from foreign ATMs (often charged on top of your usual cash withdrawal fee) – though withdrawing cash through a credit card should be avoided, even when in the UK.
Not all credit cards work like this, however. Top specialist overseas-spending cards give you near-perfect exchange rates without charging exchange fees – so £100 in Euros will cost you £100. Use our Travel credit card guide to check if your card offers fee-free spending abroad and our top picks if it doesn’t.
How to avoid: Choose a dedicated card for overseas spending. Not all credit cards are the same. If you want to ensure your overseas spending is fee-free, check out our Travel credit cards page.
Avoid going over your credit limit
Credit cards come with borrowing limits - this is the maximum a lender is willing to lend you on the card. The amount of credit will vary, but it's usually lower on cards designed for those with poorer credit scores. You may be charged a fee (typically around £12) if you go over your credit limit, though many UK credit cards no longer charge over-limit fees.=
How to avoid: Stay within your credit limit. Be careful about overspending on your card, as exceeding your credit limit can incur fees. Some cards with introductory 0% fees may also cancel interest-free periods if you do this.
You may pay a fee to have a premium or reward card
Some cards – particularly the more premium rewards cards – come with monthly or annual fees, some as much as £250 a year. These cards are typically designed for higher spenders, the idea being that the perks you get (such as cashback or reward points) outweigh the cost of the fees. See our Rewards credit card page for more details.
How to avoid: Choose a fee-free credit card without the perks. Choose the right credit card for your circumstances and don't pay fees to have perks that you don't need.
Got existing debt? Get a specialist credit card
If you've already got debt on credit cards or are in your overdraft, you can get specialist cards to help pay them off without paying interest. You will usually have to pay a one-off fee to transfer your debt to the new card.
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Got existing credit card debt? See if you can get a 0% balance transfer card to shift it to a card with no interest to help pay off your debt faster.
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Need to clear your overdraft? See if you can get a 0% money transfer card which gives you a short-term interest-free cash loan to clear your overdraft.
Never use these cards for spending or withdrawing cash. You will be charged expensive interest, even if you repay what you spend in full.
Credit card charges Q&A
Can shops add credit card charges?
In short, no – surcharges on consumers using their preferred payment method were banned back in 2018 – so shops can’t legally charge you a fee for using your credit card. This only applies to consumer cards – business credit cards can still incur extra fees from the retailer.
Businesses may also be able to apply surcharges for card usage if the retailer is based outside the UK or EU (for example if you're shopping online at a US-based retailer) as not everywhere has implemented these rules.
If you've been charged a fee by a retailer in the UK, you can report the company to Trading Standards, though you can only do this via Citizens Advice.
Can I challenge a credit card charge?
You may be able to challenge fees you believe have been charged unfairly. Check your statement carefully and contact your credit card provider if you think a fee has been applied incorrectly, if the amount seems excessively high, or if the charges are worsening existing debt problems. Being charged more than £12 for missing a monthly repayment may be seen as unfair.
Do credit card charges hurt my credit score?
It depends on the type of charge and how you manage it. Paying interest on credit card debt doesn't directly affect your credit score, however missed payments can harm it and may impact your ability to get credit in future. Frequent cash withdrawals and going over your credit limit may also be viewed negatively by some lenders.
How much does a credit card cost each month?
This depends on the card you have and how you use it. If you don't clear your balance in full each month, you'll usually be charged interest on what you owe. Each card has its own Annual Percentage Rate (APR), and some charge different APRs depending on the type of borrowing, such as purchases, cash withdrawals and balance transfers. Each card also has a minimum repayment – the least you must pay each month.
So, how much it costs depends on how much you've borrowed, how much you repay, and your card's APR(s) or APRs. Some cards also charge annual fees, though these are typically on premium rewards cards.
If managed well, using a credit card can be fee-free each month, so long as you pay back any borrowing in full and avoid avoid additional charges by staying within your credit limit and making repayments on time.
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