The Crushing Cost of Credit Card Late Fees
You pay your credit card in full every month. You’re diligent about every aspect of your finances. Fees don’t really matter to you then, right? Wrongo! I’ve been an evangelist for years about the evils of credit card late fees and how they can run you right into the
ground. Yet, I broke my own damn rule last week and it just plain kills me!
That’s right, with all that is going on in my life coupled with the Labor Day holiday the due date of my credit card came rolling in and whooshing by without a single sound. Even though I do online bill pay, since I don’t have any minimum amount set up to be paid at a given date and I generally do my finances once a month near the beginning of the month, that September 2nd due date went sailing by. I never even noticed until the 3rd when I sat down to do my finances. Then, much to my chagrin, even the near immediacy of online payment couldn’t save my sorry behind. Sure enough, I surfed over to the credit card site and there were my fears realized in plain black and white – LATE FEE $39. OUCH!!
Now, after about ten minutes of beating myself I decided I could either forgive my oversight, let it go, and set up something so I don’t do it again, or dwell in misery. I decided to let it go. After all, I don’t think I have paid anything late in decades and I spent years extolling the virtue of ontime payment to my partner during some questionable money lesson years. I still feel like a hypocrite though. How date I pull such a no-brainer! Goodness only knows if that late payment will affect if they charge interest on new purchases. Since I pay in full every month I don’t tend to worry about it. Yet, I remember once ages ago when I did pay something late, the lateness caused all sorts of new rules to kick in regarding interest calculation. For now, I shelved my Olivia credit card until the cycles blow over. So, tardy folk beware…
It used to be that a late fee would run $15. That was bad enough. Now they are up to $39 or more. I would think long and hard before I splurged on a $40 bottle of wine and I would savor that splurge for what it was – a special treat. Yet, here I was faced with $39 that gave me no value whatsoever other than a chance to be spanked by Bank of America’s computer.
While I believe we need due dates and banks expect and deserve to be paid on time, I wonder if the penalties are really in line with the offense. What does it REALLY cost the bank if you are late? Very little other than some opportunity cost for cash that they could have managed into a quick turnaround investment that given day. Even then, I’d venture a bet they don’t cash manage that tightly that a few thousand here or there really affects their strategy. Several jobs ago I remember working with the cash manager of the company and sitting in on learning how he maximized the company’s return on cash balance with short-term (sometimes less than a day) investment moves. While it educated me on this little known (to me at the time) practice, it hasn’t given me THAT much sympathy for the credit card companies that are just dripping in revenue.
I doubt we’re going to change credit card practices anytime soon, so heed these top tips from BankRate on how to avoid late fees.
- Mind Those Payment Rules
- Pay Minimum Immediately
- Move Your Due Date
- Automatic Online, On-Time Payments
- Pay By Phone
- More Express Options
- No Fee if You’re “Good”
Great advice. The only thing I am not sure about though is the automatic minimum payment. Surely I can set that up easily, yet I wonder – if I make a minimum payment by the due date and then pay my balance in full just past that due date, do I incur interest on the average daily balance for that month? Yes, I know I could read all the card details, but honestly even after I pour over them I often end up more confused than clear.
Who knows, maybe the ridiculously high late fees will be declared unconstitutional. Now THAT would be a nice change of heart.
How about you? What are your strategies to avoid late fees?
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Paula Gregorowicz is the Comfortable in Your Own Skin(tm) Coach and you can learn more at her website www.thepaulagcompany.com and blog www.coaching4lesbians.com .
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You paid it 1 day late? And you haven’t paid late in years? You’ve got a chance.
Give them a call. Explain that something came up, or that you forgot, or whatever you feel comfortable telling them. Point out that you’ve done such a good job over the years. Ask if they’ll waive the fee this time.
My dad worked for MBNA, which BofA took over. MBNA’s policy was always to be nice to card holders who managed their accounts well, even though they didn’t make much money off them. I don’t know about BofA, but if it takes less than an hour, that’s like making $39 in an hour. Or saving it. Or just feeling a lot better about life. 🙂
Good luck!!!
I hate to mention this, but if that late payment manages to make its way to your credit file, all of your other cards may jump up on the interest rates. I forget the actual term for this, but the terms and conditions on many credit cards now say that if you are late somewhere else, you immediately become more of a credit risk to them, and they bump the rates.
I would definitely try what Mrs. Micah suggests, call the credit card company!
If you pay electronically, BEWARE of your credit card making a subtle change of address for your monthly payment or a change in your due date!
I have one visa that is paid off every month. Twice in the last year, the return address for my payment was changed (a change in numbers of the PO Box). Because I pay electronically, I missed it the first time and Visa said my payment was late and they wanted to charge me (that did not happen!). I also noticed that my due date has changed a few times in the last year. If you do not pay attention to these things, your payment can become late and they will try to sock you.
I would like to think this is not an attempt on their part to get more money out of me (since I pay no interest) One has to wonder!
JJ
Kudos to Mrs. Micah! Thanks to you & Michael’s urging I did call Bank of America. They removed the late fee charge which then also undoes the extra interest I would pay. So I owe you 🙂
Tidbits I learned while on with customer service. If you are late 2 X within 12 mos your rate goes sky high (30+%). If you are late even once, you lose any introductory or special rates you may be on.
Your lateness isn’t sent to the credit bureau unless you are > 30 days past due.
And, last but not least (this to me is the most painful one) – if you are late even a day your residual interest rate is billed from the due date through the date you pay on your balance and then that also goofs up your current charges because you are essentially paying interest on those (average daily balance). So it can be up to 2 months before you’re back to charge – grace period – pay in full mode.
Thanks again for your prompting…and hope this additional info is helpful.
The best way I avoid credit cards fees is…I DON’T HAVE CREDIT CARDS!
Seriously, you shouldn’t be buying anything you can’t pay for with cash. For online purchases or travel, get a debit card and use it specifically for those purposes.
Build up an emergency fund, write down a monthly budget and pay off those cards…and never worry about getting jacked around by the credit card company again.
I’m happy to see that others advised you to contact your credit card provider. It has been my experience that they are nearly always willing to accomodate a good customer with a pristine record. In fact, I believe that my provider, CapitalOne told me that they have a policy of allowing one “redo” per year per customer.
Which, frankly, is only reasonable given the current unreasonable fees and usurious interest rates credit card companies charge. I am regularly appalled at the terms and conditions they apply. And even more so when they double or triple whack someone who’s unable to pay…by raising the interest rate, applying universal default…basically making that person an indentured servant for the next 5-10 years as they attempt to dig themselves out of the hole they’ve created. Just on a side note; I find it interesting that there doesn’t seem to be any moral outrage from the electorate or faith communities on this issue…once interest rate limits were removed, credit card companies have been free to help entrap so many people in an endless cycle of credit card debt.
I further concur with Jett: if you’re not able to manage a credit card by paying it off each month, then a cash basis is the way to go. Credit cards too easily create the perception of additional wealth. In reality they are a double-edged sword and can very easily cut you…possibly fatally!
Have you considered investigating a different credit card? You might find a more humane late fee policy at a local credit union. 39 bucks is highway robbery, and they don’t deserve your business.
My Discover card killed me this way. Late fee generates over-limit fee generates more interest generates bigger minimum payment. I paid well over $10,000 to get rid of $5,000 in credit ($500 left, next month is the final payment after five years). Needless to say, I am no longer a Discover customer.
On the other hand, I don’t feel any particular animosity toward them: I signed the contract. I spent the $5,000. My problem.
I’m on Jett’s plan: No credit card. My partner has one that we can use in case of emergency. I’m staying away from them.
I’m glad someone suggested asking for the fee waiver and glad you were able to get it. I’ve managed that on each of three occasions (different card each time) over the last 15 years or so. If you really are a responsible card holder who pays in full promptly each month, there’s no way it would be worth it to them to lose you as a customer. It never hurts to ask. The worst they can do is say no. And there are so many cards out there it wouldn’t be much skin off your nose to find another one.
I’m so glad they removed it, Paula! Great news. 🙂
The way I avoid this problem is to sign up with the credit card company to have my entire “New Balance” paid each month with a draft on my checking account initiated by the credit card company. I do the same thing with all my credit cards and utility bills.
If there is any mess up, it is the company’s fault not mine. All I have to do is have the money in my account to cover the drafts.
One way you can remind yourself of credit card payment due dates is to set up email reminders. You can have the reminder sent a week, a few days and then the day before the payment is due. I usually input the due date in the computer as a few days earlier than when it’s actually due, just because I know I’ll forget!