Ask Dr. Don
By Don Taylor, Ph.D., CFA • Bankrate.com
Today, Dr. Don explains credit
card late fees and how to begin digging yourself out of deep debt.
Credit card late fees
Dr. Don,
I rarely use my credit card for anything other than picking up a
dinner tab but when I do, it's typically for a business trip and
the balance runs up quickly. I usually pay on time, but occasionally
I will miss the due date by a day or two. I never carry a balance
for more than two billing periods. I've never had any credit problems,
I pay my mortgage with an automatic payment so it is always on time,
and I have a good financial situation. So, what's with these exorbitant
$29 late fees? My first credit card, a card I got in college, was
very forgiving in this regard. No late fees. I loved that. Interest
still accumulated, so the bank was still making money on me, and
I could pay the bill casually. The bank that issued this card to
me was bought by another bank, which subsequently changed the terms
of my card and removed this great feature. I can't find another
card like it. If I could, I would change in a heartbeat.
Judicious Jeff
Dear Jeff,
I'm going to start out on the bank's side on this one. A credit
card is a line of credit. The bank commits to loaning you money
up to your credit line and you commit to paying them back. When
you don't pay your bill on time, the bank starts to wonder if you're
going to pay it at all. By penalizing cardholders for late payment,
the bank both trains you to make timely payments and gets periodic
affirmation of your commitment to repay them. OK, so nobody likes
negative reinforcement and $29 is a pretty expensive reminder. Especially
when a couple of late payments are then used as an excuse to raise
the interest rate on your credit card.
What to do? First, call the credit card company.
Tell them that you plan to move the account if they don't rescind
the late fee. That should work the first time, and it won't the
second time. Then ask yourself why you're late with these bills.
It sounds like you're waiting for the expense check before you remit
the payment. If you can't speed up reimbursement by your firm, then
lobby the firm for a corporate credit card or purchasing card so
that the interest expense becomes your employer's problem, not yours.
If that isn't feasible, then make the minimum
payment on time and send a second payment when you get the expense
check.
Want a second opinion? Try Libby Wells' advice.
Her article, Always
getting socked with late payment fees?, will give you additional
information on avoiding late fees.
Digging yourself out of deep debt
Dear Dr. Don,
My brother's wife left him in April. She never contributed any financial
assets to the marriage and hasn't worked in nine years. She cashed
their income tax refund, maxed out the home equity line of credit,
emptied the checking and savings accounts of $12,000, and then cleaned
house by taking anything of value out of their home.
My brother earns $32,000 a year. He has $118,000
in debt at interest rates ranging from 10.99 percent to 23 percent.
He has no cash and is living paycheck to paycheck. He can't even
afford to talk to a good lawyer, as they all want $2,500 to $5,000
to take on the ex-wife in court. The house and land are worth about
$95k, while mortgage and home equity debt total $105k.
I'd like to help him out and am wondering if
you have any advice on how to find a reputable financial institution
that will consolidate his debts when the property is in both his
and his estranged wife's name.
Brother Bother
Dear Brother,
Let's look at this objectively. Your brother owes creditors $23,000
more than his home is worth, and his wife took everything that wasn't
nailed down. I doubt that a lawyer will be able to get any money
back from his wife, but he'll need one for the divorce.
Two answers that come to mind are credit counseling
and bankruptcy. Debt consolidation works best when you use home
equity loans to consolidate credit card debt or other short-term
debt. That avenue isn't available since your brother is already
upside-down in the house. The second choice is a personal loan.
The national average interest rate for personal loans is 14.99 percent.
Because of his existing debt load, I would expect his interest rate
to be above the national average.
Credit counseling agencies will be able to work
with his creditors to establish a payment schedule and may be able
to lower his interest rates. The credit counselor will also be able
to determine if your brother can remain solvent. Look to this
site's link library to connect with credit counseling services.
Confused about bankruptcy? Read Does
Bankruptcy Make Economic Sense? on Nolo.com, and check out Nolo's
frequently asked questions (FAQ) about bankruptcy. There's even
a
channel on divorce.
Bankrate.com writers base
their answers on our editorial content and advice of financial professionals.
We make no claims or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content, advice
and answers are intended only to assist you with your financial decisions. However,
by its nature such information is broad in scope. Your financial situation is
unique, and our content, advice and answers may not be appropriate for your
situation. Accordingly, we recommend that you get different opinions and seek
the advice of your accountant and other financial advisers before making any
final decisions or implementing any financial or investment strategy.
-- Posted: June 30, 2000
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