Be Aware of Credit Card Penalties
Credit cards offer a number of benefits. They give us easy access to credit in emergencies. They make it easy to pay for the things we need and want. And when used responsibly, they can build up our credit. But they can also be very expensive, especially when we have to pay penalties.
Credit card companies issue penalties in various forms. These include:
* Late fees – When we’re late paying our phone bills or electric bills, the company often tacks a late fee onto our next bill. The same holds true for credit card companies. The difference is that the fees from credit card companies are usually much, much higher. It’s not unusual for them to charge late fees of up to $39.
* Overlimit fees – Most credit card providers will not allow debtors to charge purchases in excess of their credit limits. But if your card is maxed out, interest charges could push your balance over the limit. For each month your balance is over the limit, the creditor can impose an overlimit fee.
* Penalty interest – Most credit card contracts include a provision that allows the company to raise your interest rate if you are late with your payment. In most cases, interest will not be raised until you’re late twice in a 6- to 12-month period. But the default rates are often two to three times your normal interest rate.
* Universal default – A growing number of credit card companies are raising interest rates for customers who are late with payments not only to them, but to other creditors. This is called a universal default rate. Even if you pay your credit card bill on time every month, a misstep on another debt could result in a rate hike.
* NSF fees – If you make a payment and it doesn’t clear your bank, your credit card company can add a non-sufficient funds fee to your bill. This is in addition to late payment and overlimit fees that may result from the denied payment.
* Annual fees – An annual fee isn’t technically a penalty, but it is something to watch out for when you apply for a card. Some creditors charge annual fees of $50, $75 or $100 or more. There are plenty of cards out there without annual fees, so in most cases it’s best to just pass the ones that do charge them by.
Knowing the Penalties for Your Credit Cards
Credit card issuers are required to disclose all penalties and fees that are or could be charged on credit applications. They may also send a copy of this information to new cardholders. And this information should also be provided on each credit card statement. You will have to read the fine print, but creditors are required by law to provide this information.
If you incur a penalty, you may be able to get it reversed. If it’s the first time you’ve been late with a payment or a bank error has occurred, a call to the credit card company may resolve the issue. But if you habitually make late payments or exceed your credit limit, the creditor is unlikely to be helpful.
Penalties can cost you a great deal of money. Whether they’re one-time fees or interest rate increases, they can eventually add hundreds or thousands of dollars to your balance. Paying attention to these fees and making a conscious effort to avoid them will enable you to pay off your balance much sooner and allow you to keep more of your hard-earned money.