See how fees affect
you and how to avoid them...
Credit card
companies, banks and retail stores have come up with many creative ways to charge
fees and increase their bottom line. The average late fee in 2005, for example,
was $34, up 162 percent from $13 in 1995. Over-the-limit fees were $31, up 138
percent from $13 during the same period. The danger of any fee is that when it
is applied to your balance it could put you over your allowed credit limit. If
you’re already close to your credit limit, a late fee can push you over the top!
Interest Rates
The most obvious
fee that you can reduce is the annual percentage rate (APR) you're paying to carry
a balance. If you have a decent credit score and credit history, give your credit
card company a call to see if they can lower your rate. If not, you shouldn't
have a problem finding an offer with a lower interest rate that may even offer
0% for up to a year.
Grace Periods
A grace period is the time a creditor allows you to use their money before they
charge you interest. Most credit cards today have grace periods of less than 25
days. A longer grace period is like getting a free short-term loan--as long as
you pay off the balance in full each month. If your current credit card doesn't
have a grace period or one that is less than 20 days, you should be looking for
another offer. Without a grace period, the minute you buy something you pay
interest on that purchase.
Late Payment
Fees
The fees for paying a credit card bill late have more than doubled
in the last 10 years. With shorter grace periods, its much easier to accidentally
be late with a payment. The fee for that late payment can be as high as $39. Two
ways to avoid late payment fees:
- Send
in the minimum payment due on the day you receive your credit card bill. If you
plan to pay more than the minimum, you can always send it in later without the
threat of a late-payment fee.
- Better yet,
pay your bills online and set up an automatic payment to meet the minimum on your
credit card each month.
- Always use the
preprinted return envelope that is included with your monthly credit card statement.
The coding on the envelope can help insure that its processed in a timely fashion.
- Never staple your check to your credit
card payment slip. The potential for a problem with the automated machine that
normally would handle your check may cause your payment to be pulled and manually
processed. This delay may result in late fee charges, if your payment arrives
on or near its due date.
Over Limit
Fees
Until recently, you could exceed your credit limit by 5% to 10% before
you were charged an over limit fee. But those days are gone and you will be charged
by going over by just a penny. Even worse, the over limit fee is charged anytime
you go over and not just at the end of the billing cycle. While this fee would
usually be assessed if you were over the limit at the end of the month, credit
card companies have now started to charge this fee if you go beyond the limit
at anytime during the billing cycle.
Universal
Default
In the past, 'universal default' was a common practice used by
lenders to penalize cardholders for missing a payment on one of their accounts
- even if the account was with someone else! Although many issuers have done away
with this questionable practice, many still include universal default fees which
can cause a rise in interest rates after a missed payment. If you can't find an
offer without universal default, be especially conscious that you make ALL your
payments on time.
Credit Card Cash Advances
Danger! Warning! Think long and hard when you're considering using the 'handy'
cash advances offered by your credit card company. Typically, the moment you accept
the cash advance you're charged a fee and begin to incur interest - no grace period
here! And often you're charged at a much higher rate than your standard credit
card purchases.
Prevention is the Best
Medicine
The first step in avoiding high rate penalties and fees is to
understand how they work. Take the time to read all of the terms and conditions
of your credit card application before you apply.
