Credit card late fees can cost you a fortune. Do the new no late fee credit cards help?

The average American household now possesses 19 different credit and debit cards and carries a balance of nearly $10,000. This is a shame; instead of saving money, we’re giving our savings to the credit card companies in interest. With minimum credit card payments having recently doubled and tighter bankruptcy laws in place, we’re more likely than ever to pay late. And when we pay late, the huge late fees assessed by the credit card companies kick in. It doesn’t take too many $39 penalties to stir us up; no one likes to pay late fees. 

A few banks, as well as American Express, have recently introduced new cards that claim to offer no late fees. Is this really true? Can they help? How can they really offer no late fees?

American Express has introduced its new Clear card, which is currently available for test marketing from their Website. The card promises no late fees. And Citibank has brought out its new Simplicity card, which promises no annual fee, a zero percent introductory rate and no late fees as long as you make a purchase every month.

Late fees are really the only way that banks have to make sure you pay. If there isn’t a penalty for paying late, why pay on time?

Well, there’s no such thing as a free lunch, as the old saying goes. American Express says that there are no late fees. And that’s true - to a point. The fine print in their terms of service says that if you should make late payments twice in a year, your interest rate can be increased to as much as 29%. 

Citibank’s terms of service for their Simplicity card do mention that there are no late fees if the card is used monthly. That is true, but if you pay late and fail to use the card during the billing period, the usual late fees of up to $39 apply. Worse, even if you do use the card during the billing period, Citibank can raise the interest rate on your card if you pay late. The current “default rate” for such late payments is the prime rate plus up to 23.99%. With the prime rate currently at 6.75%, that means that you won’t be assessed a penalty for paying late, but your interest rate could climb to nearly 31% per year!

If you pay on time and never pay late, these cards may be a good thing. For most people, who occasionally pay late, a traditional card with a late fee may be a better option. True, paying the fee is a nuisance, but the amount is a pittance compared to the hundreds or even thousands of extra dollars you will pay over the next few years because of the higher interest rates triggered by late payments.

Your lender won’t give you something for nothing. If you pay late, it will cost you money, one way or another.

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