There are many reasons why you shouldn't keep a big credit card balance. Your credit score can go down if you have a lot of debt. They will make you pay interest with your hard-earned money. Now there's another reason not to keep a big balance on your credit card: if you pay late, your penalty might be based on how much you owe the company.
Card companies do make money off of fees, penalties, and interest. But some of the penalties are harsh, like what seems to be the new standard: a $39 late fee on balances of $1,000 or more. Even being two days late on a payment can lead to this fee.
You're right if you think this is too harsh. Fees and penalties have never been stricter. The mortgage crisis is to blame. Home buyers who file for bankruptcy are writing off so many bad debts that card companies are facing record losses. They are trying to get their money back in any way they can, and fees and fines are the quickest way to do it.
Look at the latest numbers for three of the most popular credit card companies in the United States:
Discover
The fee for being late is $15 for balances up to $100, $25 for balances from $100 to $1,000, and $35 for balances of $1,000 or more.
Fee for going over the limit: Same as late fee.
Citibank
$15 for balances up to $100, $25 for balances between $100 and $1,000, and $35 for balances of $1,000 or more.
Fee for going over: $35
The Bank of America
The fee for being late is $19 for balances under $100, $29 for balances between $100 and $1,000, and $39 for balances over $1,000.
Fee for going over: $35
Cash advances on the American Express card from Bank of America also cost 25% in interest. If you use your card for this and keep a big revolving balance on it, most of your monthly payment will go toward fees, penalties, and interest, and not much will go toward paying down the balance. This can be frustrating and hurt people who are trying to get out of debt with their cards.
What should you do to keep from having to pay high fees and fines? Find out what you can. Sign up for cards with terms that make sense. On Creditor Web, you can compare different credit cards right here. If you have a big balance on one card and could pay it off in six to twelve months if the interest was lower, you might want to apply for a balance transfer card with no interest. So, for the first six months to a year, you can put all of your money toward the principal balance. (You should be aware that after the introductory period, 0% interest cards do start to charge interest. Terms depend on the card.)
Talk to people you know who are happy with their credit card services. Keep up with news stories that talk about the right and wrong ways to play cards. Find out how to talk to card companies about getting better terms. Once you know more, you'll be able to make an informed choice about which card is best for you and avoid fees and penalties that are too high.
