Maxed out on credit card fees

NEW YORK (CNNMoney.com) -- Your boss might give you a break if you're late to work a few times, but don't expect the same courtesy from your credit card issuer. Pay your bill late even once and you'll take a real hit to your financial future.

Late payment penalties on credit cards generally range from $15 to $39. But that's just the beginning. If the late fee pushes the balance on your next bill over your spending limit, then you also get hit with an over-the-limit fee (another $39).

And it doesn't end there. Going over your limit will cause the card issuer to automatically raise your interest rate, or APR, substantially.

Then there's a finance charge, which is the interest on the balance you carry on your card and can be as high as 35 percent.

Think you won't get hit again if you pay in full next month? Think again. Many banks calculate finance charges using what's called double-cycle billing, a confusing practice that averages out the balance from two bills, so you get hit with retroactive interest on your next bill as well, even if you've paid off the balance.

"Generally a late fee leads to an over-the-limit fee," said Chris Viale, president and CEO of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass. "Once those fees are in play, the interest rate goes up to 29 to 32 percent."

Before you know it, one late payment can easily escalate to over $100 in fees.

Credit card companies claim it's the cost of doing business, but while a creditor has a right to charge interest, consumers are tired of paying exorbitant sums for seemingly small mistakes.

Nearly one out of four consumers were charged an over-the-limit fee by their bank in the past year, and 63 percent believe the fee was unfair, mainly because it was too large, according to a survey by Gartner, a research group based in Stamford, Conn.

And consumers aren't the only ones questioning the fairness of credit card fees. This year lawmakers held several hearings on the need for credit card reform, and the federal reserve issued proposed changes to disclosure laws.

Card-issuing companies, such as American Express (Charts, Fortune 500), Capital One (Charts, Fortune 500), Citigroup (Charts, Fortune 500) and J. P. Morgan Chase (Charts, Fortune 500) disclose all of their fees either online, under the terms and conditions for each card, or in the account disclosure statement you receive when you first open an account. But they're often buried in fine print.

"The fees on accounts are disclosed to customers and (credit card issuers) are very clear about what happens," said a spokesman from Chase.

But some think that the card issuers need to be more forthcoming about their fees. "Sure it's disclosed but it's disclosed in an eight-page document with size-six font," Viale said. It can be easy to miss or even easier to misunderstand how one fee is often compounded by another.

Of course, credit-card companies must absorb some costs as a convenience for customers. For example, in some cases there might be an expense associated with having a bank representative contact a delinquent customer and resolve a banking discrepancy.

However, that "takes a phone call at 2 cents a minute," Viale countered. It's "not a $40 expense."

"There is a multitude of areas that the fees would go toward," explained a spokeswoman from Chase. But as to what those areas are exactly is unclear. "It's proprietary," she said.

While consumers might not be able to find a satisfactory explanation of the fees, there are some fool-proof ways to avoid them.

For starters, when picking a credit card, look for the card that best suits your spending style. If you carry a balance, find a credit card with a low APR.

And choose a card that uses a single billing cycle (or average daily balance) formula to calculate finance charges, so you won't get hit again if you make one late payment.

If you are a loyal customer who usually pays on time, try calling and asking the credit issuer to remove a late fee. Many card companies will waive the fee as a one-time courtesy if you ask nicely.

Be aware of your credit card limit and payment due date at all costs - even if that means poring over the fine print. Also "be on your toes about your bank balance," advised Avivah Litan, an analyst at Gartner. Credit-card companies often offer text message or email alerts and daily updates on the status of your account - at no extra charge.

In the end, cash may still be king. If you have been struggling with over-the-limit fees and late payments, "avoid the plastic," said Litan, instead "use cash at the point of sale. Good old cash works really well."

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