Brent’s Credit and Debt blog

I found an interesting article today on MSNBC about a $38.00 cup of coffee.

Banks are increasingly covering overdrafts, and charging a large fee for the ‘privilege’ of not having a bounce on your account.

Now, personally, I would rather not be able to pay for something than have to eat a $34.00 fee from my bank.  But the banks don’t always give you that option.

Take a look at the article and let me know what you think.

http://www.msnbc.msn.com/id/29879567/

Have you ever made a late payment? How about going over your credit limit? Have you ever withdrawn cash from a credit card?

If you have done any of these wonderful things, you probably noticed that your bill was a bit higher than expected. To the tune of about $35.00.

It depends on your balance, of course, with a higher balance getting a higher fee. However, one or all of these fees may have applied:

• Late charges: These are fairly sinister. You forget just ONE payment, and you get hit with a fee. That hurts. The real problem, however, is that the card company is now more likely to raise your rate. To fight this, mail your payment at least 2 weeks early, or make the payment online and pay attention to the posting date. The credit companies LIKE these fees (they are free money for a bank), and may structure the receipt of payments to try to get more of them.
• Over Limit Fees: When your balance goes above your authorized limit, your credit issuer will be kind enough to reward you by charging you a fee. These usually range from $15.00 to about $40.00. The funny thing is that these can be caused by other fees. As an example, you are near your credit limit. You get a late fee for a missed payment. The late fee pushes you over your credit limit. Now, you get an over the limit fee. And, just to add insult, they will probably raise your rates. To avoid these, make sure you stay well below your limit so there is no chance of going over.
• Cash Advance Fees: These fees vary, but if you go to an ATM and get money, you could get charged 3% to 5% of the withdrawal. That means if you get $100.00 out of a machine, your will end up paying at least $3.00. These can add up quickly. To avoid these fees…don’t get cash out of an ATM with an expensive credit card.
• Annual Fees: This should be known as ‘added creditor profit’. The company that issued your card has already incurred any costs associated with you having the account. An annual fee is their way of saying ‘If you want the privilege of using our card, pay for it!’. The first year is probably legitimate to cover their advertising and acquisition fees, but if they insist on charging you for years 2 on, and won’t waive the fee, you should probably look for a new card. Call your creditor to try to get this removed.
• Application Fees: This is a fee designed to recover the cost of getting you as a customer. Now, once you are a customer, you are going to be paid interest, so shouldn’t this be a cost of doing business? Unfortunately, they usually don’t waive these. You are kind of stuck.
• Balance Transfer Fee: I love this one! You get this great offer of ‘0% interest for 1 year with a balance transfer’, so you sign up. They send you checks to pay off your existing bills and transfer the balance. And then, they charge you a fee to transfer the money to them! This fee is often 3%, so while not huge, it definitely takes a bite out of what you can pay on your cards. If you see this happen, ask them to waive the fee. But you should ask them about fees BEFORE you transfer money. If they want to assess a fee, find a different card.
• Returned Payment Fee: If your check bounces, your credit card company will charge you a fee. Like everything else these will vary in cost, but typically they are about $39.00. This is a penalty to make sure you won’t do it again. So make sure you have money in your account, and don’t do it again.

While these fees may seem like small amounts, if you look at them from the same perspective as an interest rate, they are hideously expensive. As an example, let’s say you have a $1000.00 card at 17% interest. Your monthly interest rate is about 1.42% per month, or about $14.20. That $39.00 late fee is 3.9% of your balance! That is nearly 3 times as much paid out for no real reason, other than the fact that you made a mistake. If you do that every month for a year, you are paying 46.8% interest! These fees are a huge cost to you. Avoid them if you can.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.