Reducing Credit Card Fees

When talking about credit cards, by far the most important fee to get under control on your credit card is the interest fee paid on the balance due. While using credit cards wisely can give you many advantages, paying out hefty fees to credit card companies doesn't stop with your interest rate payment. In fact, credit card companies have come up with creative ways to assess fees that are on par with banking fees. Knowing about these sometimes hidden fees and taking the appropriate steps to avoid them will save you hundreds of dollars a year if not more. Here are some of the credit card fees of which you should be aware:

The first point to understand is that no matter how appealing and friendly those commercials for credit card companies look, their goal is the direct opposite of yours. Credit card companies would love for you to carry a huge balance and encourage you to do so by raising your credit limit, offering you additional cards and lowering your minimum payments. They will continue to do this as long as they feel you can continue to pay the credit card fees they charge and eventually pay off the debt. You must realize this and be ever vigilant on making sure the credit card companies don't hook you into their fee system.



Late Payment Fees are increasing and for good reason. The standard 30 day grace period to pay off debt that used to be the common norm for credit cards is no longer standard or common. In fact, some cards now come with no grace period at all. The minute you purchase something, you are charged with interest for that purchase. Most credit cards today have grace periods less than 25 days.

The longer the grace period, the better for you since you are getting a "free loan" of this money as long as you pay off your credit card balance in full each month. Check to see how long a grace period you credit card offers and consider changing to another company if it is especially short (under 20 days). Also make sure that you don't have or get a credit card that has no grace period at all.

In addition to the shorter grace period, the fees assessed for paying a credit card bill late have more than doubled in the last 10 years. Since the grace periods are getting shorter, it makes it easier for you to accidentally miss a payment. The easiest way to avoid a credit card late payment fee is simply to send in the minimum payment the day that you receive your credit card bill. Then you can pay off the rest of the balance near the due date. Even if your second payment arrives late for some unexpected reason, your first minimum payment will ensure that you don't get assessed a late payment fee.

Over Limit Fees are another area where credit card companies have continued to change their system to their advantage over the years. Ten years ago an over limit fee would typically be assessed only if you exceeded your credit limit by 5% to 10%. Not any longer. If you surpass your limit by a single penny, you will likely be assessed this fee today. Even worse, the over limit fee is now moving to a fluid time table. While this fee would usually be assessed if you were over the limit at the end of the billing cycle, credit card companies have now started to charge this fee if you go beyond the limit anytime during the billing cycle.

Furthermore, it is no longer the ending balance alone that is calculated. The finance charges your credit card company adds to the account on the closing day of the billing cycle will now often trigger an over limit fee. The over limit fee is also considered a default of payment like a late fee which can trigger the interest rate you pay to jump to the highest level.

Even worse, credit card companies have widened their definitions of a "default" to include more than a single card. You would assume that if you missed a payment or went over the limit on a credit card, it would only effect that particular card. That is no longer the case. Commonly referred to as "universal default," it means if you miss any type of payment (for example, even a car payment), your credit card company can treat it the same as missing a credit card payment and increase your interest rates. If you miss one payment on one credit card, more than likely you will see an increase in interest rates charged on all your cards. This makes it that much more important to avoid making late payments.

You want to make sure you don't staple or attach your check to your credit card payment voucher in any way. Doing so will prevent the document from being processed through the credit card company's automated machines. The credit card company will put your payment aside until someone has the time to remove the staple from the voucher. This delay may result in you being assessed late penalty charges if your payment arrives on or near its due date.

If you do get assessed a late payment or over limit fee, it is worthwhile to call the credit card company and complain. Chances are that if it is an isolated instance, the credit card company will waive the fee, especially if you decide to take your business elsewhere if they refuse. Ask to talk to a manager from the beginning since they have more freedom to waive these fees than front line credit card personnel. Erasing the late fee is more important than just the fee itself. A single late fee will often jump the interest rate the credit card company charges you by several percentage points if not more and possibly even the interest rates that other credit cards you own charge.

If you have extenuating circumstances that will force you to miss a payment, immediately contact the credit card company and explain the situation. Many will take the situation into account and work with you to make a different payment schedule. This will make it much less likely that they will report a late payment to the credit agencies than if you miss a payment with no explanation at all.

Credit card cash advances are another area where you can get hit with unpleasant and unexpectedly high fees. Unlike your credit card purchases where you are given a grace period to pay off the charge with no interest accruing, credit card cash advances almost always begin charging you interest the day you take the advance. Furthermore, the rate will not necessarily be your typical credit card rate, but likely a much higher rate. Check with your credit card company to see if they have dual rates for credit card purchases and cash advances. Avoiding credit card cash advances all together is the best way to reduce these fees. If you don't have the money in your bank account, don't spend it.

Another "fee" that you should be on the lookout for is two-cycle billing. This is not a typical fee, but it ends up costing you money since the credit card company calculates the interest you owe in a way that is extremely advantageous to them. Credit card balances are calculated in one of three ways: adjusted balance, average daily balance or two-cycle balance. The "adjusted balance" (interest is calculated on the outstanding balance at the end of the billing cycle) is the best method for you in terms of the way interest is charged while "average daily balance" (interest is calculated on the average daily balance during the entire billing cycle) is slightly more advantageous to the credit card company.

Credit cards that use the "two-cycle billing," however, should be avoided at all costs. In this way of calculating interest, you are charged on the average daily balance for all your purchases in the current billing cycle (just like average daily balance) AND the previous month's billing cycle. That means that even if you paid off the previous month's balance in full and on time, your can still be charged interest on those purchases the next month.

In the end, your best protection is reading all the fine print that comes with your credit card and not making your decision solely on the introductory rate the credit card company offers. Remember that the credit card companies offer those teasers rates to get you to join, but as son as you do, they will work just as hard to try and reverse those rates to their favor whenever possible. Taking the time to understand the fees credit card companies like to assess will keep you in a better position to avoid them all together.

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Copyright (c) Jeffrey Strain. Reprinted with permission. He is the owner of SavingAdvice.com - a personal financial site with tips and articles dedicated to saving you money.

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