Always getting socked with late
payment fees? Follow these tips
By Libby Wells • Bankrate.com

The credit card bill due by the sixth wasn't mailed until the fourth. Sure enough, the next statement contained a $29 late fee. What's worse, the payment was only $18.

Sound familiar?

Most of us have been penalized at least once for missing a payment deadline. The stringent requirements of card issuers make it easy for even the most organized people to slip up.

Those with a fervent desire to avoid those punishing fees already have most of what it takes to beat the bank. Throw in some know-how and you will never pay a penalty again.

The credit card companies' increasingly stiff fines are a big motivation to get payments in on time. Within the last two years, all of the top 10 card issuers have raised late fees, according to Bankrate.com research.

In October 1997, for example, MBNA and Fleet Bank charged $18. A September 1999 survey by Bankrate.com showed both issuers now charge $29. In fact, nine of the top 10 card issuers charge $29 for late bills. Citibank, the No. 1 issuer, charges $25.

Severe, long-term consequences
Besides taking a big bite out of your budget, late credit card payments can have more severe, long-term consequences. Some issuers raise interest rates dramatically if a cardholder is late even once. Fail to meet the due date twice within six months and the annual percentage rate is almost sure to be jacked up.

Consumer Action, a nonprofit education and advocacy organization, recently surveyed 105 cards at 63 banks and found that penalty interest rates, known as "default" rates, have reached daunting levels.

For example, Washington Mutual's default APR is 28.7 percent; American Express is at 24 percent, and AT&T Universal Card, Bank of America, Household Bank's GM Rewards card and Wells Fargo have gone to 23.9 percent.

"This pricing maneuver has been in evidence since 1996 and appears to be gaining ground," says Linda Sherry, spokeswoman for Consumer Action.

Some issuers, such as Citibank and Capital One, have started raising credit card interest rates if their customers are late on other bills, such as a home or auto loan.

Start of a vicious cycle
For a person who is at or near his credit limit, late fees can start a vicious cycle. One $29 penalty can put a customer over his credit limit, which results in an over-the-limit fee, another $29 in most cases. If the minimum payment is not enough to bring you back under your limit, plus cover the fees, you incur another over-the-limit fee.

"It's a Catch-22," warns Sunny C. Orr, assistant director of the Center for Financial Responsibility at Texas Tech University. "Late and over-the-limit fees put you deeper and deeper into debt."

There are a number of ways to pay credit card bills: the mail, electronically and, in the case of most retail cards, at the store itself.

For those who have trouble with timeliness via snail-mail, technology affords several options. But there are cracks, even in the digital world. Many creditors aren't equipped to handle electronic payments.

"Fewer than 50 percent of payments are set up for that," says Warren Heller, research director at Veribanc, a Massachusetts company that studies banks. "It's not always a good idea to pay electronically."

Consider electronic payments
Folks who are considering automatic payments should first call the creditor to find out whether they can receive such transactions.

If a card company is "wired," e-payments can be done several ways:

• At the card issuer's Web site. American Express, Discover and First USA are among the biggies that allow their customers to pay online.
• Through direct deposit. Most banks will arrange for automatic deductions when your paycheck is deposited electronically.
• Through online banking. Most of the large banks, and many small ones, are set up for PC banking, which allows customers to monitor accounts, move money and arrange for automatic payment of bills.
• Via phone. Many card issuers will take a payment over the phone when you call and give them your checking account information. The institution that holds your checking account also will make payments if you call and ask. If the bill recipient can't handle electronic transmission, the bank will send a paper check.

Even with electronic and phone payments, consumers have to allow time for processing. It's not a "real-time" transaction.

For example, Washington Mutual customers who use pay-by-phone must give the bank three to 10 days' notice before the bill is due, depending on where it is going and whether it will be paid by check or electronically.

But Washington Mutual absorbs the late charge if the customer follows the rules and the payment didn't reach the creditor on time.

First USA, which will take your checking account information over the phone for bill payment, has a few hours' delay. Payments made before 4 p.m. are posted to the account after midnight and the money is available the following day.

These lag times are critical to know because many banks demand payment by a certain time of day.

"Some companies are very sharp about not crediting payments," says Heller. "They have rules like 9 a.m. deadlines."

Fees are another consideration. Monthly bill payment through your bank's Internet site carries a monthly charge, usually $6 to $8. And some banks and card issuers will charge up to $5 for a one-time payment arrangement over the phone.

If you still prefer to mail it ...
Those who prefer to stick with the U.S. Postal Service are advised to not play it too close to the wire. Trying to gauge how long it takes a payment to reach the bank is a crapshoot. And holidays and inclement weather can delay delivery.

Mailing times also cut into the grace period -- the number of days a customer has to pay the balance before finance charges kick in.

Grace periods have gotten shorter. In the last two years, Chase Manhattan has curtailed its grace period from 25 days to 22, according to Bankrate.com research. Fleet Bank went from 25 days to 20.

Currently, seven of the 10 leading card companies give 20 days' grace, Bankrate.com found in a September survey.

Federal law provides another potential stumbling block for the consumer. Creditors who offer grace periods are required to mail bills only 14 days before the payment deadline. This means a bill could be due almost immediately after it is received if a customer wants to take advantage of the interest-free period to pay off their balance.

There are several other things to note when paying credit card bills by mail:

• Pay attention to collection times on mailboxes. If you drop a bill in a box on Saturday, it might not be picked up until Monday.
• Check your bill's due date against the calendar. Does it fall on a holiday or weekend? If so, schedule the payment so it reaches the creditor before that day.
• Record the date you mailed the payment, the check number and amount on the statement.
• Use the preprinted envelope provided by the card company and follow the payment guidelines outlined in the fine print on the back of the bill.
• Make sure the check is legible and includes the account number.
• Mail bills at least five to seven days before the due date.
• If you are under the gun, send the payment by express mail or Western Union. It's probably cheaper than a late fee and avoids costlier consequences such as default interest rates.
• If you are cutting it close with a retail card, make the payment in the store. Discover card customers can pay at Sears stores.

Regardless of how they pay, consumers are wise to never let a credit card bill go unopened for several days. Account terms, such as fees, grace periods and interest rates, can be changed on short notice.

Try getting the due date changed
Orr encourages consumers to call their bank if they have payment problems. For example, if a bill is due at a time when your funds are lowest, most issuers will shift the deadline.

"Sometimes you can get them to change your billing cycle so it better matches when you pay your bills," she says.

Good customers, Orr says, have some power when it comes to late fees and other problems. Most banks will bend a little to retain a customer with a solid track record.

"Negotiate," she says. "Get them to go back and look at your payment history and they will take off the late fee for the month.

"Consumers don't know to ask. They do have some leeway, and it's more common that you might think."

-- Posted: Jan. 3, 2000