Being late on a credit card payment can have a number of consequences, the first of which is a hefty fee. In most cases, cardholders are charged somewhere in the ballpark of $40 for missing a due date, even by one day. That’s why when the Consumer Financial Protection Bureau announced a plan last year to cap credit card late fees at $8, it was seen as a win for consumers. However, a recent judicial ruling found that the CFPB overstepped its authority and is scrapping the rule.
With the prospect of lower late fees on pause for the foreseeable future, some cards that offer the benefit of not charging late fees at all — or allowing some leniency for first-time missed payments — may become more attractive. See which cards have softer late-payment policies, along with some tips on how to avoid being late in the first place.
The Push for Lower Late Fees
While the CFPB rule to cap late fees at $8 was well-intentioned — the idea being not to add more financial pain to someone already struggling to afford their bills — critics say lessening the consequences may also send the wrong signal to cardholders and create more late payers.
“Capping late fees at $8 solves nothing, although I do think a $35 or $40 late penalty fee is outrageous,” says Howard S. Dvorkin, certified public accountant and chairman of Debt.com. “These days, $8 is basically the price of a breakfast sandwich. So while I embrace any idea that helps Americans struggling with debt in this era of economic uncertainty, I don’t see this moving the needle.”
One reason why, say critics of the rule, is that credit card issuers would then look for ways to replace the lost late fee revenue. “They’ll either find somewhere else to extract it from you, or they’ll simply drop customers who are late, meaning they might not have access to a credit card at all,” says Dvorkin.
Others feel that a lower fee isn’t doing much to address the root cause of that problem. “Late fees tend to get a lot of attention, but in reality they are usually just a symptom of a bigger issue,” says Michael McAuliffe, founder and president of Family Credit Management, a nonprofit credit counseling agency. “Most people do not pay late because they forgot, especially with ACH and auto pay widely available. They pay late because the money is not there.”
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Credit Cards with Lenient Late-Fee Policies
No matter the reason for paying your credit card late, it can be frustrating to see a $30 to $40 fee getting tacked on to your balance. However, there are a few cards that have chosen not to use late fees to penalize cardholders.
Apple Card
One of the key features of the Apple Card is that it doesn’t charge any fees whatsoever, including late fees, annual fees, penalty fees or foreign transaction fees. This attractive, consumer-friendly policy, along with the card’s cash back rewards, could make for an appealing option if you’re someone who loves anything Apple-branded and has been burned for forgetting to pay on time.
Citi Simplicity® Card
The Citi Simplicity® Card is aimed at people looking to take advantage of an introductory annual percentage rate on balance transfers and purchases — which often includes folks with cash flow problems. Going with that simplicity theme for people who may need a financial lifeline, the card also does not charge a late fee or a penalty APR if you happen to miss a payment.
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Petal® 2 “Cash Back, No Fees” Visa® Credit Card
The Petal® 2 “Cash Back, No Fees” Visa® Credit Card is designed for building credit, earns cash back and boasts no fees. Of course, the whole point of a credit-building card is to establish good payment behavior, so the goal should be to always pay on time (despite no fee to worry about).
Discover Cards
Discover’s general policy is that cardholders get a one-time “get out of late fee” pass.
For example, as stated in the terms and conditions for the Discover it® Cash Back, the late payment is listed as “none the first time you pay late. After that, up to $41.” It also does not charge a penalty APR, which can be an even bigger cost-saving benefit over the long term. Other Discover cards with this first-time free pass policy include:
— Discover it® Secured Credit Card
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Should You Get a Credit Card With No Late Fees?
Choosing a credit card should always be about finding the best fit for your spending style and goals. Not charging late fees is a nice perk to have in your back pocket, but it’s probably not the most important criteria for selecting a card.
“While cards that advertise no or low late fees sound consumer-friendly, they can be more of a marketing angle than a real solution,” says McAuliffe. “If someone is getting hit with late fees, they are almost always also carrying balances at interest rates in the 20% to 30% range or higher, which is the real cost.”
That said, if there are other features on these no-late-fee cards that are attractive to you, a less stringent late-payment policy can be considered an added perk.
Tips to Avoid Late Fees or Pay Less
Better than choosing a credit card solely for its lack of late fees is to have a strategy in place to pay on time. And if you do happen to miss a payment and are charged, the first thing to do is pick up the phone. “Call your credit card issuer and ask them to remove it,” says Dvorkin. “If you’ve been a good customer for a long time, they’ll often make this exception — once.”
The other thing to do is set up auto pay. “We never recommend relying on memory when it comes to paying your credit cards and other accounts monthly,” says McAuliffe.
Set each account so that you’re automatically making at least the minimum payment to avoid fees and other consequences. “We also recommend setting calendar reminders to check in on the total balance,” he adds.
Bigger Problems Than Late Fees
Late fees stink, but what’s worse than a one-time penalty is a bump up in interest rate, known as a penalty APR. Sometimes, you’ll be stuck with that penalty APR indefinitely.
The other major issue is that if you go a full billing cycle without making a payment, that lateness is then reported to the credit bureaus and will have a negative impact on your credit score.
Finally, if the reason for your lateness is that you simply don’t have enough money in your account to pay on time, then you have a larger problem to address, says Dvorkoin. “You may need to call a credit counseling or debt relief agency for a free debt analysis,” he says. “They have programs that can help you freeze late fees, cut interest rates and oftentimes lower monthly payments.”
McAuliffe agrees, adding that most credit card issuers are generally willing to reduce or eliminate fees and interest for consumers who seek help from a nonprofit credit counseling agency and commit to a structured repayment plan.
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Hopes for an $8 Late Fee Max Are Dashed. Here Are Some Cards That Charge No Late Fees originally appeared on usnews.com