The Devil (and Dollars) in the Details

If the devil's in the details, the dollars are in the fine print. Anyone who has ever gotten socked with a penalty fee on their credit card bill knows it's the little things that'll get ya.

Last year Americans paid more than $24 billion in fees to credit card companies (around $220 per U.S. household) -- $15 billion of which came from penalty fees, according to CardTrak.com. That's a 150% increase in penalty-fee income since 1998 for companies like Citigroup (NYSE: C  ) , MBNA (NYSE: KRB  ) (the brand behind the Fool credit card), JP Morgan Chase (NYSE: JPT  ) , American Express (NYSE: AXP  ) , Wells Fargo (NYSE: WFC  ) , and Capital One Financial (NYSE: COF  ) -- names you might recognize from the cards lining your wallet.

Why are consumers getting socked with so many fees?

Shrinking grace periods: You might be wistful for the days when you had a full month in which to send in your credit card payment. These days, a typical due date is closer to 20 days. A decade ago, credit card customers paid on average $20 when they missed the payment deadline. Today, you'll pony up more than double that (up to $45) for a single foible.

Better deals: It's often the most attractive offers that trip up consumers. Balance-transfer promotions can be a great way to buy some low-interest (or interest-free) time between purchases and payment due dates. Transferring existing balances from higher-interest rate credit cards is also one of the methods we recommend for those trying to accelerate their get-out-of-debt plan. But one misstep -- a single late payment or simply using the card for a new purchase -- and that sweet deal suddenly turns sour. A late payment can trigger an instant interest rate hike. And if you accidentally use that card at the grocery store, you'll learn that new charges are subject to a higher interest rate than the balance-transfer sum.

Oh, and naturally, the amount at the higher interest rate will be last in line to be paid off.

Pricier perks: You name it, and your credit card issuer has found a way to charge you for it -- over-limit fees, activation fees, annual fees. Even perks like convenience checks, balance transfers, credit insurance, and ID theft protection aren't automatically freebies. Perhaps you've received a prepaid gift card only to discover when you try to use it three months later that those gift dollars are getting eaten up by account inactivity fees, a monthly maintenance fee, or even charges to check your account balance.

Lenders sharing secrets: You know when you goof up, you'll pay a price to the lender with whom you committed the infraction. Been lazy about paying someone else on time? Big Brother already knows. The "universal default clause" allows your lender to raise your interest rate based on your payment record with some other creditor. (Your credit report -- which your lenders check frequently -- reveals all.) More than 40% of lenders have this clause in their cardholder contracts.

Although penalty fees and the number of triggers that activate them have been steadily on the rise, banks aren't entirely to blame for the inconveniences they cause. Most everything you need to know about being an upstanding card carrier is spelled out in the fine print -- even the outrageous stuff, as evidenced in these awful offers Fool readers shared with us.

Those few dollars in late fees and extra points on your APR may not seem like much, but they can sure take a bite out of your borrowing power if you're a frequent offender. Many service providers are quick to send collection agencies after deadbeat bill payers. And a collection action can turn up on your credit report, marring your ability to get a loan for a mortgage, car, or credit card, and even a job or apartment.

If you're not a frequent offender, ask the lender to forgive a one-time gaffe such as a late payment. To protect yourself from all other costly inconveniences, follow this time-honored (and free) advice: Read the fine print.

Learn about the credit card industry and how to get out of debt in our Credit Center. And read about all things credit related on our Consumer Credit/Credit Cards discussion board.

Longtime Fool contributor Dayana Yochim does not own shares of any companies mentioned in this article.


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