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Excessive fees are exacerbating consumer debt

Every time you miss your monthly credit card payment, you’re likely getting hit with a late fee from your issuer — which can be as high as $41. On top of that, your credit score takes a hit, your interest rate could climb on future purchases and your creditor may potentially end your promotional interest rate, like a 0% introductory APR, exacerbating your existing credit card debt.

These late penalties hit households living paycheck-to-paycheck particularly hard — rather than being a “meaningful incentive to make on-time payments”, says the CFPB. CFPB Director Rohit Chopra also expects credit card issuers will only hike late penalties further as limits rise due to inflation.

The CFPB proposes reducing late fees down to $8, and capping them at 25% of the minimum payment owed.

“Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive,” said Chopra in the press release.

Read more: Here's how much money the average middle-class American household makes — how do you stack up?

How to avoid racking up late fees

While Americans rack up thousands in credit card debt every year, here are some steps you can take to avoid adding exorbitant late penalties to the mix on your own.

1. Automate your payments

If you keep forgetting about your payment deadlines — even with those email or text reminders from your issuer — consider setting up autopay on your account.

You can set the payment date and choose how much money you’re transferring over each month, whether that’s a set dollar figure, your minimum payment owed, or the entire balance on your account. Ideally, however, you want to avoid paying the bare minimum since that means collecting interest as you carry your balance over into the next month.

And make sure you actually have the funds in your account to make these automated payments, or you’ll get hit with an overdraft fee — which the CFPB reports are around $35.

2. Change your payment due date

Check with your issuer to see whether you can change the due date on your credit card. You might be able to do this manually on your online account, or call up the company to ask them on the phone.

Say you get paid the first week of each month, but your credit card bill is due a few days prior. It might be in your best interest to sync up your payments with your paychecks to help you pay your bills in full and on time.

It might also be easier for you to coordinate with your other bill payments — so you don’t lose track of when they’re all due — or to space them out for more breathing room.

3. Ask your issuer to waive the fee

This lesser-known trick doesn’t always work, but it doesn’t hurt to try. Contact your issuer and request they waive the fee.

You can explain your financial situation and, if you’re a pretty reliable borrower, show them you have a history of making on-time payments. Chances are, your creditor will be happy to help out, especially if it’s just a one-time thing.

It may also help to pay your late bill as soon as you notice — and indicate to your issuer that it’s unlikely you’ll fall behind again.

What to read next

Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.

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