Credit card companies and banks come up with creative ways to charge fees and increase their bottom lines. The average late fee in 2008, 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 limit. Here are some of the most common credit card fees and how to reduce or eliminate them:
The most obvious fee that you can reduce is the annual percentage rate (APR) that you’re paying to carry a balance. If you have a decent credit score and some 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% APR for over a year.
A grace period is the time a creditor allows you to use their money before they charge you interest. Most credit cards 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.
Late Payment Fees
Credit card late fees have more than doubled in the last 10 years. They can be as high as $39 per infraction. Here are some simple ways to avoid late 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 pre-printed 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 payment slip. The potential for a problem with the automated machine that handles your check may cause your payment to be pulled and manually processed. This delay may result in a late fee, 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 a fee. But those days are gone and you will be charged an over limit fee by going over 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. This can result in multiple penalties in a short period of time, especially if you make purchases at several locations and don’t realize the card is maxed out. A simple way to avoid this is to closely monitor your account activity and keep a detailed ledger.
In the past, ‘universal default’ was a common practice used by lenders to penalize cardholders for missing a payment – even if the account was with someone else! Due to recent regulations, most issuers have done away with this practice, but it hasn’t been completely outlawed. Most credit cards DO NOT include universal default, but if you must apply for an offer that includes it, 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 to reduce or avoid high penalties and fees is to understand how they work. Take the time to read all the fine print, including the terms and conditions of your credit card application, before you apply.