The saying, "If something sounds too good to be true, it probably is" can often apply to shopping deals laced with hidden costs. Take discount airlines, for example. The airfare is advertised for hundreds of dollars less than the major competitors, but when travelers go to book their trip, they're suddenly hit with extraneous fees for selecting a seat, bringing a carry-on suitcase, and in-flight refreshments – even water! The final cost ends up being within a few dollars of the major airline's fare all due to hidden costs.
With a little research and some strategic planning, hidden costs can be reduced or eliminated entirely. Here are some examples of hidden costs and how to avoid them.
What are Hidden Costs?
Hidden costs are unforeseen expenses added on to purchases. They can be minor, such as in the airline example above, or they can be major, such as the various closing costs added on when buying a home. Either way, hidden costs are tacked on to the final bill, driving the overall cost of ownership up from the original sticker price.
Examples of Hidden Costs
Buying a house
Buying a home is one of the largest purchases of a lifetime. It requires investing years of savings into a single purchase and can be nerve-racking for even the most money-savvy spender. When making the commitment to buy a home, it's important to consider the hidden costs. Application fees, inspection fees, closing costs – when added up, these costs can drive the final price up by thousands of dollars.
How to avoid them: An important thing to keep in mind when buying a home is the ability to negotiate with the seller. Working with a trusted and seasoned Realtor and acquiring a mortgage through a reliable source will alleviate a lot of the anxiety associated with hidden costs. With a little convincing, many of these fees can be paid by the seller or wrapped into the overall cost of the home.
Annual credit card fees
Credit cards with rewards can be a great way to make some extra cash back from your daily purchases or build up miles to trade in for a vacation. Although, it's important to keep in mind the risk of overspending. Credit card balances can quickly creep up and accumulate steep interest costs. Another downfall can be the annual fee that can be anywhere from a few to hundreds of dollars.
How to avoid them: Do a little math before signing up for a reward credit card to determine if the cash back will exceed the annual fee. If the answer is no, look for other options without the extra cost. Also be wary of interest rates and try to pay off balances in full to avoid paying unnecessary costs.
Hotel fees
Taxes and resort fees are an unfortunate downfall of booking a vacation. While taxes are a non-negotiable, resort fees can sometimes be waived with a little extra research and communication.
How to avoid them: Call the front desk ahead of booking to ask what resort fees come with the room. Sometimes these fees can be removed if the tenant will not be using the services. It's also a good idea to look into the hotel's loyalty program. There are usually no costs associated with the programs and members get access to perks like free Wi-Fi – saving up to $20 a day!
Stay Aware of Hidden Costs
Hidden costs might seem like a minor price to pay when making average purchases, but in the long run they can accumulate as much as hundreds or even thousands of dollars a year. These tips are just a few examples of how to avoid paying unnecessary costs, but the important takeaway is to be aware of the hidden fees with any purchase.
Erin Ellis
Accredited Financial Counselor ®
Philadelphia Federal Credit Union
eellis@PFCU.COM