Illustration for the article titled When to Avoid Credit Card Transaction Fees?Photo: Gerain0812 (Shutterstock)

If you’re like me, use your reward credit card on just about every purchase to get points or cash back and you may not really think about it. But not every transaction is worth flashing the plastic as some vendors may charge transaction fees that negate your rewards, or worse, cost you more than just using a check, cash, or debit card.

When should transaction fees be avoided?

The transaction fees for credit card purchases are typically 3%, but they are typically between 1 and 4%, which is the equivalent of one dollar to four cents. There are times when you should avoid these fees, but there are also times when it’s worth it as your reward card rewards may still exceed the cost of the fee and offer a higher total value compared to using cash or direct debit. The trick is to know what your points or cashback percentages are worth and compare that to the fee.

Do the math

For example, let’s say a restaurant insists on a 3% transaction fee, which means you lose $ 3 for every hundred dollars you spend just because you use your credit card. When you use a Bank of America Cash Rewards card, you only get 2% cashback on food, which costs you 1% of the transaction. It’s the same as paying $ 3 to get a $ 2 discount – obviously not worth it.

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It gets more complicated with points or miles, but the idea is the same – make sure you earn more value in points or miles than you pay as a fee. The only problem is that not all points are the same and differ in terms of redemption value. This is why the Points Guy reviews are so handyYou will receive an estimate of the present value of the points and miles for each award card, which you can use to calculate the true value of your award benefits.

For example, a card with seven reward points for every dollar spent sounds impressive. However, if the present value of each point is only 0.4 cents, you will only see a total of 2.8 cents for every dollar spent. In contrast, another card that has three Reward Points for every two cents worth of dollar spent gives a total of six cents – which is better.

This is why you want to know the estimated value of your card’s points first, and then compare it to the transaction fee, which, as mentioned, varies between one and four cents per dollar. If the value in points exceeds the value of the transaction, you will know whether the card is worth using.

Welcome bonuses are an exception

An exception to this rule would be if you need to use your credit card to meet a spending goal, e.g. B. a hefty welcome bonus where you have to spend a certain amount of money in a short period of time. These bonuses can have a value between $ 1,000 and $ 2,000. So it’s definitely worth skipping the occasional transaction fee, provided you can cash out the remaining balance once you’ve reached your spending target.