6 Hidden Fees on Debt

Photo by MENE TEKEL

Don't get sucked into "easy" credit--there's no such thing!  Keep a wary eye out for these deceptive credit strategies that will nickel and dime your account to death:

1. No Interest on Furniture Loans
Impressed by those "no interest until 2015" ads?  Before you sign off on a mound of debt there are several surprises hiding inside the fine print.  If you qualify for a loan term with no interest, you must pay back the entire balance within the specified period.  If by the end of your term you still carry a balance for your furniture, all the interest since the beginning of the loan will be added.  Even if you only owe $20.  Plus, if you're a minute late making a payment, interest will kick in for the entire loan.  What seems like a good deal can quickly sour if your bill arrives late or if the billing department "somehow" didn't receive the bank draft.  Your best bet is to save up cash for your furniture and avoid sleepless nights.

2. Making Minimal Payments
There's a reason credit card companies set a minimum payment for your credit card.  They're trying keep you locked into some sort of payment for the rest of your life.  The minimum payment usually covers only the finance charges on your debt, so you can literally pay indefinitely and make no headway.  While it's better than paying nothing at all, try to aggressively attack your debt and set a time limit to pay it off completely.  Carrying a balance is never a good idea.

3. Late Payment Consequences
One or two days late making a payment is no big deal, right?  After all, your biology teacher let you slide on getting your project in on time.  Welcome to the world of cutthroat profits.  Credit card companies love it when you pay late.  Not only do you get slapped with a fee, but also they can hike up your interest rate to an obscene percentage.  Not to mention it reflects negatively on your credit score.  Our lesson to learn here is pay early to avoid risking huge fees.

4. Cash Advance Charges
Have you ever used those nifty "checks" sent by your benevolent credit card company?  They seem so easy to use.  This brilliant marketing strategy comes at a huge cost to gullible customers.  First off, they aren't truly checks--you don't have the money.  These cash advance checks have a minimum purchase, usually $75 or more, and they charge a revolting 3% interest on top of your regular finance charges.  How sweet of them to help you out in a pinch.  Rip up the checks before you have a chance to consider using them.

5. Annual Fees
At one point American Express was the crème de la crème of credit cards.  Users were given red carpet treatment and banks highly approved of users with great Amex credit since they had to pay off balances at the end of the month.  Not so today, friends.  American Express and several others require an annual fee for the privilege of going into debt.  Don't fall for the extra $60 each year--instead opt for a card with no usage charge.  No reward system is worth it.

6. FHA Loan Interest Charges
It's tough to get a house right now.  Most loan officers want to see stellar credit and 15-20% down for a decent interest rate.  The fact is folks just don't have that much in assets at the moment.  One of the more attractive alternatives is an insured FHA loan for first-time homebuyers.  By only having to put down 3.5% (plus the $8,000 housing rebate) it may appear to be the only alternative.  But in exchange for a low down payment you are required to pay insurance for your loan.  After the recent housing fiasco, this type of loan is considered higher risk since you enter into debt with less down.  The insurance you'll pay for the loan ranges between $80-120 depending upon the price of your home.  This is money you will never see again.  Over the course of a 30-year loan you'll pay an additional $28,800.    

Although these extra fees and charges may not add up to much over the course of a few months, keep a long-term perspective in mind.  Sure, one box of french fries won't clog your carotid arteries, but decades of them will.  The same goes for your financial strategy.  Small changes reap big rewards.