What are Late Fees? Tips

Late Fees and Interest Rates

Credit card companies are in the business of making money. They do that by charging fees for services and interest on outstanding balances. Balance transfer fees, late credit card payment fees, and cash advance fees, for example generate millions of dollars each year in revenue for credit card companies.

Another way credit card companies make money is by teasing you with a low introductory rate then raising it after so many months. Your interest rate may have gone up because the introductory rate period expired. If you make late credit card payments, your interest rate probably went up because of the late payments.

There are all sorts of loopholes in credit card agreement fine print that allow credit cards to boost your interest rate if you pay late. If you paid your credit card bill by the due date, contact the credit card company and ask them to explain why the rate increased. If you don't get a satisfactory answer, ask to speak to a supervisor and request that the rate be reduced.

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Interest Rate Increases on Multiple Cards

A little-known secret about late credit card payments is that the creditors actually love it when you pay late. That's right. They love it, because they make buckets of money off the credit card late fees they charge you each time you pay late. Plus, depending on the terms of your agreement, if you pay late even just once, your interest rate can be jacked up to over 20 percent.

For payments that are late but are made within thirty days of the due date, the pain usually ends there. Cross that thirty-day threshold, though, and wheels kick into motion that will haunt you for months if not years to come. That's because if even one of your credit card companies reports a late payment to a credit reporting agency such as Equifax or TranUnion, all your other credit card companies will likely jack their interest rates sky high, too. Plus, your credit score will suffer a little more for each late payment. The lower your credit score, the more you pay for credit. If you pay your bills on time, you can get the best interest rates offered. Pay late and lenders will gouge you with higher interest rates or deny you because they consider you too risky to do business with.

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Talking with Your Creditors About Late Payments

Creditors appreciate it when you talk to them. If you are having financial difficulties and know you will be unable to pay your credit card bill on time, you should contact the company as soon as possible. Whether you were laid off, your car broke down, or one of your kids got sick and you have huge medical bills to pay, explain the situation to your creditor and let them know you will be unable to make your payment on time. It's best if you can give them a definite time by which you will be able to make payment and creditors how much you will be paying. If the situation is one in which you are unlikely to be able to pay the minimum on time for an extended period of time, ask to speak to a supervisor, explain the situation to them, and try to set up a payment arrangement to avoid being charged late fees.

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Moving a Due Date to Avoid Late Fees

If you are making late payments to your credit card companies or other creditors and it's a matter of timing, consider asking your company to change your due date. For example, if you get paid once a month on the first of the month, your bill is due on the twenty-fifth, and you always seem to be running on fumes at that point in the month, ask to have your due date moved to the beginning of the month. If you don't want to do that, you always have the option of paying the bill before the due date. Either of these may be a short-term solution, though.

Chances are, if you are having trouble paying your bills by the due date, you're not in control of your money. You need to sit down and get a handle on your income and your bills to see where the problems stem from. You may need to cut back--but not eliminate--eating out or going to the movies. You may need to start eating cube steak instead of Porterhouse. For more information on budgeting, visit Money Management International's web site.

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Avoiding Late Fees: Paying Electronically

No one is sitting around saying "What are late fees?" We all know, and none of us are safe from them. Believe it or not, even if you are using your credit card company's online payment tool to make regularly scheduled payments each month, you can still get hit with credit card late fees.

Let's say your minimum payment is $76. You set up your account to automatically withdraw from your checking account each month in the amount of $100 just for good measure. Then you charge a few more things on that card. Bingo, your minimum payment is now $115. If you aren't opening your bills and reviewing them each month, you are going to get hit with a late fee because your payment, even though made in good faith, is less than the minimum due. To avoid this, make sure you check your account online at least once a month and review your statements, whether paper or electronic, as soon as you get them.

If you are making a last-minute, one-time payment, keep in mind that even Internet payments and telephone payments do not post to your account immediately, so leave at least a day for processing.

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About Late Fees

What are late fees? A late fee is a fee charged by a creditor when you do not pay your bill by the due date. Just about every company you do business with from your neighborhood video store to your electric company charges late fees. Pay your cable bill late, and you'll get socked with a late fee. If you pay so late that your service gets disconnected, you'll get hit with a reconnect fee.

Most people gripe the loudest about credit card late fees because those are some of the highest charged, some running as high as $39. So if you think you can't afford paying your bills on time, try adding up how much you pay in late fees each month. You could save yourself as much as $100 to $200 a month depending on which bills you're paying late.

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Suspected Incorrect Late Fees

It seems the more ways there are to pay bills, the more ways there are for companies to mess up applying the payments. If you are paying your bill by snail mail, make sure you send it out at least ten days before the due date to allow time for delivery and processing. If you are paying using the company's Web site, pay attention to the fine print. Most have language that states payments submitted after a certain cut off time will be applied the next day or within so many business days. So even though you may think your payment is being immediately applied, you may get hit with a late fee.

If you have your bills set up for autopay and have a fixed monthly payment, make sure that amount is enough to cover the minimum payment, otherwise--you guessed it--you'll get hit with a late fee. If you paid your bill on time and don't think you should have been charged a late fee, pick up the phone, explain the circumstances to the operator, and request the fee be waived. Most companies will waive the fee as a courtesy, but don't expect them to do it again and again.

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Avoiding Late Fees: Paying by Mail

If you write your bills out and mail them, then you should pay your bills at least twice a month to make sure you are paying within the 25-day grace period most creditors offer. Make sure you use the preprinted envelope provided by the company and include the payment coupon to ensure that the payment gets credited to the right account.

It's a good idea to include the last four digits of your account number on the memo line of your check in case the coupon and check get separated. But only include the last four digits in case your mail gets lost or stolen. That will prevent someone from stealing your account information. Make sure you put the proper amount of postage on the envelope, and don't carry your bills around in you pocketbook or leave them in your car for days on end once they are made out. Get them into the mail ASAP.

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Planning Ahead for Payments

If you keep getting late fees month after month, and if you feel like you make enough money to pay your debts, then it's time to sit down and figure out what's going on. If you truly do make enough money to pay all your bills, then it isn't necessarily a money management issue but a time management issue. If you pay bills willy-nilly at the eleventh hour, you need to schedule dedicated bill paying time each month. Make a list of all your bills, the amount due, and the due date. Depending on when your due dates fall, you will be able to avoid late fees if you pay your bills in two batches, once at the beginning of the month and once in the middle of the month.

If you don't think you will stick with a set plan, then you should consider setting your bills up for autopay. You can do this through each creditor's Web site or by calling their customer service. However, if, say, you change banks or get a new debit card number, that can be a pain to have to notify all those companies. Your bank probably offers a centralized bill payment service where you can set all your bills up at once, set the payment date and amount and be done with it. Just make sure you set the payment date far enough ahead of the actual bill due date to avoid late fees, and make sure the minimum amount being paid actually covers the minimum amount due.

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