Stop paying late fees! Here's how to tame your bills

Payment due marked on calendar

Want to save money each month? Without cutting back on spending or getting a second job?

Stop paying late fees.

They look harmless enough. In fact, you might feel gratitude or indifference when you see a late fee on a bill.

So the cable company charged you a $7 late fee. Big deal. At least it didn't turn off your service.

But that mind-set is exactly what's so dangerous.

Sure, avoiding late fees sounds straightforward enough -- pay everything on time. Yet, as people who are cash poor and far behind on their bills know, it isn't as simple as it looks.

However, if you follow our advice, you'll keep more of that hard-earned money in your pocket:

Smart move 1. Keep your bills visible. "A lot of people have a drawer for bills, where they're out of sight and out of mind. But you need to know when your bills are due or coming due, so keep them in an obvious place, somewhere where you can see them every day," says Daniel Penrod of the California Credit Union League.

Smart move 2. Use technology to your advantage. It might be risky to automate your payments in order to pay your bills on time if your checking account is constantly running on empty (it'll be of no help if you exchange late fees with bank overdraft charges), but Thom Fox of Cambridge Credit Counseling Corp. suggests having email reminders alert you when bills are due, managing your money on a free financial site like Mint.com or using your mobile phone as a budgeting tool.

Smart move 3. Call and negotiate the late fee. "It never hurts to ask," says Fox. "The people on the other end of the phone line are people, too."

Smart move 4. Understand this might take a while. Don't beat yourself up if you can't catch up right away. Try to pay on time the bill with the biggest late fee, which is probably one of your most important bills, such as your mortgage, rent or car payment, or perhaps your credit card.

Indeed, if you have debt, it needs to be tamed, and it's also important to put money aside for emergencies.

But you might have enough to do both if you can first end your streak of paying late fees.

There is, of course, good reason for sticking a customer with a late fee, and anyone who tried to argue otherwise doesn't understand capitalism.

"They're charging you for using their money longer than you said you were going to use it," says Jack Taylor, professor of retail at Birmingham-Southern College in Birmingham, Ala. "When they get your money, they want to reloan it or invest it. If they don't get your money, they're making up for that ability to recycle that money."

Because of that, the more sophisticated the operation, the less gracious customer service is likely to be if you call and ask for a late fee to be waived.

Your friendly neighborhood dentist might cut you a break; your mortgage company, probably not.

But just because a late fee is warranted doesn't mean the price is fair.

Many industries' fees are regulated, but there is no one-size-fits-all rule for every service provider.

Moreover, late fees, like anything else, are subject to rise, often as a way to make more money if profits are down elsewhere. So the $7 late fee that you never noticed before might now be $14, or it might be that you used to be able to pay your mortgage 10 days late without a fee, but now it's only eight days.

Complicating matters further, fewer people receive paper statements, electing to receive them through email. If you don't actually click on the link or PDF leading to a statement, you might not even notice there is a late fee.

Some businesses (think: credit cards, auto finance companies) might even let your late fees pile up and not mention them, showcase them prominently on the statement or even point it out to you when you talk to customer service, provided you're making your regular monthly payments.

It is possible if you aren't studiously watching your money, and even if you think you are being careful, to be behind on a bill and not even know it.

As Taylor says of your creditors, "They do want their payment, but they make money off of their late fee, and so they win either way."

Meanwhile, that aforementioned $7 cable company late charge, if you are continually behind, adds up to $84 a year, which, depending what your bill looks like, could mean that you've paid for more than 13 months of cable instead of 12.

If you're constantly late with your mortgage, your fee is probably much higher, say, $50, which would add up to $600 a year.

And let's not even get started adding up late charges for credit cards, which historically have been high.

All of this means that if you have fallen into a pattern of paying bills after the due date, it can be easy to forget just how much those late fees are costing you.

Most late fees are between 5% and 10% of your monthly bill.

If you spend, say, $3,000 a month, on bills ranging from your mortgage or rent to your utilities and cell phone bill, you could theoretically spend $300 a month just in late fees. That's $3,600 a year -- on late fees.

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  • rleader

    Another good way to stay on top of it is to set aside a specific time for paying bills. Like Sunday evening -- before you settle in for TV watching or preparing for the week ahead. If you get in the habit of it, it's easier to stay organized and not miss a payment.

  • Marcy

    A group of 250 consumer groups and community organizations is asking federal regulators to halt payday lending by banks -- the practice of short-term, high-interest loans that banks claim are not as onerous as those from private payday lenders. Consumer groups say they're really the same thing and perpetuate the cycle of debt.