Like all credit card users, I know that many of us see too much money slip through our checking accounts for interest payments and fees. Until I read some information compiled by Harvard Law School professor Elizabeth Warren, I had no idea how much.

She recently testified to the U.S. House banking committee that credit card users spent $109 billion on interest and fees in 2005. Let that mind-boggling figure sink in for a moment and take a look at where all that money went:

  • $71.13 billion to interest
  • $20.62 billion to interchange fees (part of the merchant service fee)
  • $7.88 billion to penalty fees
  • $5.26 billion to cash-advance fees
  • $3.26 billion to annual fees
  • $0.85 billion to enhancements (like credit insurance and other optional services)

She makes another arresting point about the size of some fees by reformulating many of the flat charges credit cards levy (like late payment fees and over-limit fees) into interest rates. Default rates can reach as high as 29%. For someone carrying a $100 balance and paying that 29% default rate, a $39 late fee raises the real rate of interest to 68%. Add a $49 over-limit fee and the interest rate jumps to 117%.

What did we get in exchange for all this money? Nothing but a drained checking account, more monthly bills, and that sickening feeling that you're spending way too much money on purchases you may not have needed anyway.

Sometimes we don't even learn that our credit cards come with all these traps until we get into a financial bind. Make one late payment, and you'll quickly find out. How can you minimize or eliminate your share of the $109 billion going to credit card companies for interest payments and fees?

  • Avoid any card with an annual fee unless you're absolutely certain that the annual payment is worth whatever perks you might get from the card. Most often, your money's better spent toward whatever you want your credit card to buy you. If you have an annual fee, call the credit card issuer and ask that it be waived.
  • Avoid getting a cash advance, and avoid using those preprinted checks that draw on your card's credit. Often, those credit draws start accruing interest immediately, without the usual grace period given for purchases.
  • Avoid "enhancements." Credit cards already have certain protections against fraud that allow you to dispute unauthorized charges. Programs that allow you to defer payments in case of a job loss or other emergencies cost money that could be put toward your bill, or toward building your own emergency accounts.
  • Pay your bill on time, and pay attention to both the date and time your payment is due. This has become more important because late fees and default rates have gone up. If you're forced to choose between paying the minimum on time, or paying more later, just pay the minimum. (Of course, do everything possible to pay more than the minimum each month.)
  • If you have a problem remembering to pay your bill, sign up for an automatic payment service. If you tend to cut it close to the deadline, you might also consider signing up for options that allow you to pay online, but know that your payment probably won't be credited instantly. Pay by telephone if you're running too late to mail a check. The fee may sound outrageous, but it's probably less than the late fee and any interest charges you might accrue.
  • Read the messages printed on your monthly statements to keep up with changing interest rates, fees, and other costs. Call the credit card company and ask about anything you don't understand.
  • Get in the habit of using the card with the lowest interest rate, even if you typically pay your bill in full every month. A slip-up will cost you less.
  • If you know you have a problem managing credit cards, stop using them. You can get the same convenience from a debit card. You may not get the perks, but the benefits rarely offset the costs of fees and interest if you're not paying your bill in full every month.

Lastly, make sure your personal safety net is strong. Some people get into trouble with credit cards when unexpected job losses, medical bills, or disabilities set them back financially. You can protect yourself from spiraling credit card debt in those cases by having a stash of savings in an emergency account and the appropriate insurance.

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Fool contributor Mary Dalrymple welcomes your feedback.