How to avoid credit card late fees

Written by Geoff Williams
Posted On: November 11, 2011

Late fees are coming back. That is, five of the nation's top six credit card issuers recently released their late payment data for the month of September, and late fees were on the rise. It's the biggest jump in late fee payments since February 2009, according to the Associated Press.

It may be troubling data, since in reading the tea leaves, one wonders if this is the canary in the coal mine that is pointing the way to dark financial days ahead. On the other hand, it's been pointed out by analysts that delinquencies are down to historic lows. It's kind of expected that they would go up. They can't go down forever. That would eventually mean that nobody is ever late with their credit card payments, which sounds nice and all but, given human nature and the economy, is virtually impossible.

The most late payments in September were with Capital One, which had its delinquencies climb to 3.65 percent of balances on an annualized basis. The month before, they had been 3.43 percent.

American Express had the fewest late fees, clocking in at 1.5 percent of balances, just a tad higher than the 1.4 it had been in August.

Citibank late fees, though higher than average, showed movement in the right direction, dropping to 5.87 percent from 6.92 percent in August.

How to avoid late fees

But as interesting, troubling or boring as the numbers may be, the takeaway from all this data should be a reminder to everyone that late fees should be avoided at all costs. One late fee every once in a blue moon won't destroy your credit score, and delinquent charges are less costly than the $39 that they typically were, courtesy of the Credit CARD Act of 2009 (which says that late fees can now be no more than $25 for a first time offender and $35 for the second late fee within six months).

But for people who live paycheck to paycheck, late fees can be a lot more damaging than they may look at first glance. If you're always one missed paycheck from a financial disaster, here are few things to consider about late fees.

  1. Budget for late fees

    Not that you want late fees or should plan to have them, but you should keep track of them. Hopefully there's nothing to keep track of, but if you know you occasionally are late with a bill, tally them up--all of your bills and not just credit cards--and start adding up how much the late fees cost and how many you've been accruing. You might be unpleasantly surprised by how quickly some late fees here and there add up. A lot of utilities and services tack on a 10 percent late fee, meaning that if late fees are a way of life for you, you literally--if you are always a few days late on everything--might be spending 10 percent more than you need to be.

  2. Be proactive

    If you know you're going to be late with a payment, other than your credit card, by all means call the service, be it your cable company or electric utility or whatever, and see if you can get your due date moved to a more appealing date. If you aren't a chronic offender, it's almost a given that you'll be cut a break. If you know you're going to be late with your credit card payment, it's a tougher call. Credit card issuers get nervous if they think you're having money problems, and signaling that you're going to be late could, in theory, anyway, lead to problems you don't want, such as the lender cutting off or shrinking your credit line.

    Still, you could call, say nothing about being late but ask for a new deadline date, explaining that you'd be able to manage things better if they moved the date from, say, the 25th to the 28th. That isn't likely to wave any red flags with your issuer. Of course, they may well decide to move the date starting with the next payment, which wouldn't do you any good right now.

    But if this is after the fact, and you have been late recently, and it's a first-time or very rare offense, by all means, call them, be polite and ask them to waive it. If you're late all the time, and you ask them to waive it, you may hear laughter on the other end of the phone.

  3. Pay on time

    Thank you, Captain Obvious! This almost goes without saying. But late payments can have far-reaching consequences. Some banks will raise your interest rate if you're late, and if you're late for two or more billing cycles in a row, your credit card issuer can tack on a late fee of up to 3 percent of the balance. So it's not just a matter of paying $25 here or there. A late fee can be much more costly. In fact, you can also lose your airline miles or other rewards simply by being late with a payment.

Whatever your situation, if you are consistently paying late fees, keep in mind that taming late fees could be the first significant step to getting your financial house in order. If you're always paying late fees, you're not just in a hole, you're the one holding the shovel.

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