How Much Late Fees Actually Cost You (And How to Avoid Them)

budgeting

Have you ever found yourself paying late fees on overdue bills?

If you’re like many Americans, you probably answered yes. You also probably know just how easy it can be to overlook or fall behind on payments. And while the occasional late fee might not seem like a big deal at the time, these little additional charges can cause big problems in the long run.

The Facts Behind Late Fees

In an effort to reduce the financial impact of first-time late fees, the government implemented the Credit CARD Act of 2009 which capped the late fee for first-time offenders at $27, which is $12 than average pre-act fees. However, after your initial late fee charge, at $37 charge will be applied to subsequent outstanding bills.

Why Late Fees Can Be Dangerous

The average American receives seven bills every month: electricity, mortgage or rent, phone, internet, water, car, and insurance. In the event these bills were to be past due, you’d be looking at anywhere between $189 and $259 in late fees, depending on how many times you’ve been overdue.

Say your monthly water bill costs $50. If you neglect to pay at least the minimum payment, you’ll be charged a $27 late fee, boosting your due amount to $77. Go 30 days without paying and you’ll be charged $37, increasing your bill to $114. After 60 days of zero payment, you’ll owe $151. It’s easy to see how quickly the cycle can skyrocket your costs, especially if you’re late on more than one bill.

While these perpetual fees may seem unfair or extreme for those under financial stress, the whole point of late fees is to implement incentives that encourage you to pay our bills on time.

How to Avoid Late Fees

Overdue payments due to forgetfulness are common and can easily be prevented by setting a reminder in your calendar and enrolling in autopay. Late payments as a result of insufficient funds, however, take a little more work to prevent. Fortunately, the following three tips can help.

       1. Improve Your Budgeting Skills

Perhaps the best way to prevent falling victim to late fees is to be better about budgeting. At the beginning of every month, sit down with your spouse or roommates and plan your monthly expenses. Start by adding up any and all income. In addition to regular paychecks, also consider any additional money from side-gigs, investments, etc. Then make an itemized list of all outgoing expenses. Costs that should be on this list include:

  • Mortgage/rent
  • Car payments
  • Electricity bill
  • Gas bill
  • Water bill
  • Internet bill
  • Phone bill
  • Groceries
  • Regular doctor’s visits
  • Costs affiliated with your pets
  • Travel expenses
  • Insurance costs
  • Credit card statements
  • Student loan payments
  • Etc.

Once you have a specific idea of how much you’ll owe each month, compare this total to your final income amount. Do these numbers add up? Is there anything left? If you’re in the negative or close to it, what can be eliminated or adjusted from your outgoing expenses to even out your finances? By budgeting for each and every foreseeable cost, you can do a better job at setting aside the money you’ll need to pay bills when they are due.

In addition to budgeting, saving money is also a secure way to ensure on-time bill payments.

       2. Be a Smart Saver

Everyone likes having leftover money at the end of the month. Not only does it mean you’ve budgeted properly, but it also gives you a bit of financial freedom that can be nice after consistently living paycheck to paycheck. Instead of spending surplus funds on things you may not truly need, consider putting this money into savings. Along with gaining interest in a savings account, this money can be used to cover any mishaps that may arise when it comes time to pay bills. Whether you didn’t budget as well as you should have or have costly unexpected expenses, having money in savings can be a lifesaver. You can also go the extra mile by including savings in your monthly budget. Consider setting aside a certain amount of savings each month and don’t touch it unless it’s absolutely necessary.

       3. Lower Your Monthly Expenses

If you’re diligent about budgeting and do your best to save, but you still find yourself cutting it close or falling behind on bills, take a look at your monthly expenses and find areas of your spending that can be adjusted. Options to consider include:

  • Shopping at a more affordable grocery store
  • Trading in your current vehicle for a more affordable car with better gas mileage
  • Take public transportation, walk, carpool, or ride a bike more often
  • “Go Green” by being mindful about turning off lights, using less water, and turning your thermometer down a degree or two
  • Try going without television for a month
  • Reduce your shopping sprees
  • Switch to generic medications and opt for off-brand products
  • Review your insurance policies to see if more affordable options are available

Making the effort to improve your financial situation takes time, dedication, and diligence. If you find yourself in need of quick cash to avoid falling behind on monthly bills but don’t have time to budget, save, and adjust expenses, come to Power Finance Texas for help. By getting pre-approved for a personal loan, you can get the money you need when you need it.