Hidden Fees Can Derail Your Debt Management
Debt management and debt reduction efforts can be difficult for many people. You may find it challenging to pay your bills on time and reducing debt balances can be even more difficult. If you have researched debt reduction strategies in the past, you have found that paying more than the minimum monthly payment required can result in a more significant reduction. However, you may not realize that hidden fees tied to your credit cards and loans could be impairing your ability to enjoy substantial results.
What Are Some Types of Hidden Fees?
If you take a closer look at your various account billing statements, you may notice that your debts typically have interest fees that are charged each month. While this may be a substantial fee that you may be responsible for, this is not the only fee that can derail your efforts to manage and reduce your debts. For example, some of your accounts may have a grace period, but others may charge a sizable late payment fee if your payment is received even one day late. This fee may be tacked onto your next minimum monthly payment amount due. You may also be charged a fee on a credit card if your account balance exceeds your credit limit. Keep in mind that some of these factors could also trigger your interest rate to increase, and this could further affect your ability to manage and reduce debt balances. Another fee that may be charged regardless of your account activity is an annual fee.
How Do These Fees Affect Your Debt Management Efforts?
When you are trying to reduce your account balances, you understandably want as much of each payment as possible to be applied to your principal amount owed. Many people who are focused on debt management and reduction efforts will focus intently on trying to keep the interest rate as low as possible, and they may even shop around to find an account with a lower interest rate that they can refinance the debt to. However, in many cases, these types of fees can cost more than the interest charges that you may pay in a month on the account you already have. Rather than overlook these fees, you should be very aware of their impact on your debt reduction efforts and on your ability to manage your budget. When you are regularly charged these fees, you are inflating your monthly expenses unnecessarily.
How Do You Stop These Hidden Fees From Hurting You?
Imagine that you’re a victim of identity theft, or your private information has been stolen. Some con artist guy or gal has your bank PIN number or has hijacked your PayPal account. Maybe the thief has opened up a credit card account in your name and has been running up charges for months on end, never to be paid off. Your credit score might be ruined. You might already be in debt management or credit counseling, but you now need to enter emergency money-management mode.
What if we told you that your hard earned money was being ripped off every day — in small increments, right under your nose? What if you were giving up this money willfully and lawfully? What would your debt management plan look like if you knew you were losing nearly a thousand dollars or more through hidden fees? What would you think of your credit score if you knew that your credit card bills were unnaturally high?
Bob Sullivan is the author of a revealing book titled Gotcha Capitalism. He calls family income loss by hidden fees the biggest white-collar crime in America. Sullivan reveals that some of the most destructive “gotcha” fees are present in items we use and pay for (or pay off) nearly every single day: cell phone and text messaging fees, credit cards fees, bank ATM fees, and so on. Worse, he says, some families lose $2,000 each year to hidden fees. Consumer Reports is even more pessimistic, estimating that in 2017, the average family lost closer to $5,000 in hidden fees each year. How’s that for scary?
When it comes to derailing debt management plans, banks are the worst culprits. Banks do not really protect their customers against overdraft fees. Instead, they fine customers up to $50 a day for overdrawing their accounts – a real swindle when you consider that many banks tout their fabulous “overdraft protection plans” as a prime reason to sign up. The Washington paper reported that the Government Accountability Office (U.S. GAO) found egregious deceit among banks charging consumers for overdraft fees.
Other culprits that can hurt your debt management efforts and your credit score are your monthly credit card and cell phone bills. You might be racking up charges on a phone bill because of frequent text messaging, a fact that is not disclosed in some cell phone plans. Bob Sullivan also finds that most cell phone companies lock consumers into contracts by charging hefty cancellation fees. Your cell phone company might change the terms of your plan, forcing you to accept those terms or to pay more cash to switch to another plan within the company.
Late or missed payments on credit cards are big credit score downers – and many credit cards come with hidden fees or interest rates. CBS News reports that late fees can top out at nearly $40 or $50 and can cause your “low” interest rates to skyrocket. Some credit card companies also charge if you pay your card’s bill on time BUT have paid another bill (such as a utility payment you put on credit) late, as part of the contract. The dirtiest trick of all is when a credit card company charges you for NOT using the card. They’ll tack on additional fees because your account usage has languished.
Finally, paying bills late will smack you with fees you can easily cut. Discuss the importance of making timely bill payments with your spouse or partner. If you’re enrolled in group debt counseling sessions, share your wisdom with the group. It’s simple: If you pay your gas or electric bill late, you will incur fees. If you pay your rent late, your landlord can charge you additional rent (this is standard on many leases). Even if you’re not late – perhaps you’re a “last-minute” type of person – you can still be charged. Many gas and electric companies charge fees for paying bills over the phone, so it’s best to get those bills in on time — either online, through the regular mail, or with the aid of automatic deduction from your checking account. So pay those bills on time!
If you are serious about managing and reducing your debt balances effectively, you should spend time carefully reviewing your billing statements for each of your accounts for the last several months. Pay attention to the different fees that have been charged. Remember that some accounts may have more lenient rules regarding when fees may be assessed, and they may have lower overall fees. If hidden fees are problematic for you, take steps to avoid them. This may be by improving your payment efforts or by refinancing your debt to a more advantageous account or switching banks that have less hidden fees.