If credit cards were human, they would be bipolar. On the one hand they are convenient sources of free short-term (30 days) credit. They allow you the convenience of buying without cash, and lets you earn rewards for purchasing stuff you would have bought anyway. On the other hand, they can be twisted enablers that push desperate, or weak (or both) people into an endless cycle of debt.
There are two factors responsible for the Dr. Jekyll and Mr. Hyde personality of credit cards: high interest rates and fees. This article will focus on the worst credit card fees around, late fees, and show you how you can avoid them.
1. Know the Law on Credit Card Late Fees
As bad as credit card late fees are, things are much better now. Before 2010, credit card issuers could get away with outrageous fees for the smallest infractions.
New rules enacted by the Federal Reserve Board limited the damage credit card companies could inflict. Make sure you understand the rules on late fees and make sure your credit company is not charging you illegal fees.
Federal Reserve Rules on Late Fees
Since August 22, 2010, the Federal Reserve Board implemented new rules on the maximum amount credit card issuers can charge users. The skinny on the new rules that apply to late fees is that credit card companies can’t:
- Charge you more than $25 for paying late
- Charge a late fee that exceeds the dollar amount the consumer is late in paying. For example, if you are late in paying a $10 charge, the maximum late fee is $10.
- Charge you multiple late fees for the same violation. This is a trick many credit card issuers have been caught doing.
If your credit card company breaks any of these rules, report them to your local consumer protection agency. Here is an index of local consumer agencies by state.
2. Follow the Credit Card Company’s Payment Rules
Federal law requires credit card companies to credit payments on the same day they are received. However, credit card issuers are allowed to set specific payment guidelines and if these guidelines are not met, the issuer can take its sweet time (up to five days) to credit the payment. An on-time payment can easily become a late-fee if you sent the payment close to the deadline and you failed to follow one of the payment rules.
Ideally, you should have a bank account and a credit card that allows you to pay online. Even if you don’t have a conventional bank account there are prepaid cards you can use to pay your credit card bills.
However, some credit cards require you to pay by mail and check. If so, change credit card companies as soon as possible. In the meantime:
- Use the pre-printed envelopes they provide.
- Make sure your handwriting, particularly the amount being paid, is easy to understand.
- Don’t forget to sign the check.
- Make sure you add the right postage and send it at least a week before the due date. To be safe, send the payment 10 to 14 days before the deadline.
Related article: 10 Ways to Tell if Your Credit Card Sucks.
3. Pay the Minimum No Matter What
The simplest and safest way to avoid penalty fees is to always pay the minimum amount on your card. Do you whatever you have to, including raiding your daughter’s piggy bank. Obviously, you should aim to pay the entire balance on your credit card, because unless it is a life or death emergency, credit card debt is always a bad financial move. There are far better and cheaper ways to borrow money. But if you’re not sure whether you can afford to pay the entire balance, pay the minimum immediately. You can always send more money later.
4. Set Up an Automatic Online Payment
If you have several credit cards, remembering to pay your credit card bill on time can get tricky fast. Set up an automatic online payment with your credit card by linking it to your bank account.
If your credit card doesn’t allow automatic online payments (you already know you need to change credit cards ASAP), set a recurring reminder on your phone’s calendar or use a personal finance app to give you a head’s up when a credit card bill is due, and then pay by phone. These personal finance apps are a great place to start.
5. Choose Your Own Due Date
Most credit card issuers will allow you to choose which day of the month you want as your due date. Choose the same day for all your credit cards and make it a time of the month when you are more likely to have cash. If your credit card company won’t let you do this, you know what to do.
Credit cards are amazing personal finance tools. Used correctly they provide convenience, travel rewards and even cash-back rewards. Do you know how credit card companies can afford to provide these services? You guessed it–interest and fees.
Don’t be the one to finance credit card perks for the rest of us. Late fees are from the devil. They are a four-letter word we all can remove from our vocabulary by following these five simple steps.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.