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Lenders Sharpen Their Fangs

Are there fang marks on your wallet? If you haven't noticed those small puncture wounds left by your credit card company, take heed -- those pinpricks are filled with poison. (Cue Toccata and Fugue in D Minor.)

Every year, lenders' profit-padding bite becomes more venomous as they extract billions of dollars in late fees, overlimit fees, inactivity fees, and maintenance fees.

According to Consumer Reports, card companies have snatched up a 150% penalty fee income increase since 1998. In fact, Americans spend more on late fees than we do on milk and eggs every year. It's enough to drain the blood from your entire body.

Attack of the killer fees
So where exactly are these killer fees lurking?

  • Late-payments potions: According to the 2007 Credit Card Survey by, the average late payment fee has more than doubled since 1995, to $28 from $13 (although some credit card companies charge tardy customers even more).
  • Overlimit ghouls: Got a little carried away at the mall and went over your credit limit? Overlimit fees seem to march in lock step with late-payment penalties and can run you more than $30 a month until you right your overspending wrongs.
  • Penalty-interest-rate wraiths: Missteps like the two above often trigger yet another gruesome punishment -- a penalty interest rate. And banks are out for blood.  According to the Consumer Action survey, 85% of card companies impose penalty rates. Like a shot of adrenaline, rates can shoot up to 33% or more in a heartbeat. Compared to the average interest rate cardholders pay -- around 14% -- it can quickly turn into a stint in debtor's dungeon.
  • Universal-default demons: If any of your credit cards are haunted by the "universal default" demon, companies will attach a ball and chain to your interest rate -- even if you've always been a model customer. This clause allows issuers to legally raise your interest rate if they catch wind of bad behavior anywhere in your credit file. Consumer ire over this double-whammy gotcha has driven some lenders, such as Citigroup (NYSE: C  ) , to drop the practice. However, just because one of your cards is playing "good cop" doesn't mean the others in your wallet are following suit.
  • Vanishing grace periods: Gone are the days of having nearly a full month to get your check in the mail. Consumer Action reports that the average grace period is 22 days. Letting that bill get buried in a pile of junk mail is detrimental to your financial health: Payment punctuality counts for 35% of your overall credit score. (Here's more on how a late payment will really affect your credit score.) When you're tardy paying a bill, it's not just the late-payment fee you have to worry about, but also a hike in your interest rate. Getting that payment in under the wire will cost you, too. Phone payments (where the money is automatically transferred from your bank account to pay your bill) will run you anywhere from $3 to nearly $15 at institutions like HSBC (NYSE: HBC  ) , Citi, and Washington Mutual (NYSE: WM  ) .
  • Debt rising from the dead: Got any ghosts of unpaid bills past? Lenders just love to clear the cobwebs from charged-off accounts and sell old, unpaid debts to collection companies. These so-called "zombie debts" spawn calls from collectors demanding payment from formerly flatlined debts. Before you admit to anything, check your records (you can order your credit report for free at, face the beast (the original lender) yourself, and stop the zombie debt from stalking you for eternity.

Ward off credit card curses
In the war against financial demons, there's no need to go it alone. An army of Motley Fools is at the ready on the free Credit Cards and Consumer Debt discussion board, to weigh in on all things related to plastic. For hands-on help dealing with debt (or any other money issue from taxes to estate planning to portfolio management to picking starter stocks), our Motley Fool Green Light service is on call and at your service.

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