Convenience fees have been creeping up in the finance industry every now and then. They key to avoiding them is to understand how they operate. It is best to tackle a problem if you know what you are dealing with. Boxing blind will only leave you exhausted and nowhere close to your target. Dig into the details and have a plan of action.
One thing to note is that convenience fees are not technically classified as deceptive as what capital one faced early last year. There might be questionable practices in the finance industry but this is not one of them. This is actually a legitimate cost to consumer in exchange of a value-added service most commonly found in credit cards.
Distinguishing convenience fees
Convenience fees are charged on top of the purchase for a privilege. As the name suggests, it is for the convenience of the consumer to use an alternative payment method. This is a payment channel that is not the norm for the business establishment. One perfect example would be paying for credit card purchases by phone.
It indeed saves up precious resources like time and effort to transact payments using the most convenient method possible, but this practice brought about convenience fees. There are no ruling as of now on the minimum and maximum amount for assessment of this fee so it varies per transaction.
As Creditcards.com stated, convenience fees should not be confused with surcharge. These are two very different fees assessed mostly with credit cards. Surcharge is mostly using a credit card. This is of course a practice frowned upon by numerous consumers. It is a common sentiment that they should not be charged extra for buying on credit. Convenience fees, on the other hand, is added to the purchase when the payment method is not the usual practice.
Surcharging is much more controlled that convenience fees. There is a legal framework with which to work around in. Consumers should know the following to be guided with this additional fee:
- No more than 4%. Merchants are restricted in slapping surcharge fee to credit card payments for up to 4% of the total transaction price. They are not allowed to go beyond this cap when adding surcharge to a credit card payment. Anything more than this could be a convenience fee and not surcharge.
- Illegal in 10 states. As most consumers dislike surcharge fees, there are actually 10 states that has gone to the point as declaring them illegal. These are Connecticut, Florida, Kansas, California, Colorado, Massachusetts, New York, Texas, Oklahoma and Maine. Residents of these states enjoy a surcharge free credit card use.
- Cash discount. Using cash is one way of getting rid of credit card debt and actually encouraged by merchants. To the point that some offer cash discounts as compared to using credit card. The ruling on this is that the prices for cash and credit purchase has to be clearly presented side by side for the consumer to see.
Concert goers in Houston got surprised to see $30 convenience fee added on to their total bill when they paid online as reported by ABC13.com. This is a steep price to pay when purchasing tickets online. Of course there is no cap on the amount but proper planning can prevent this from happening. Like buying the tickets in the venue to save $30. The dilemma comes in at the point when tickets are selling like hotcakes. The tickets can be sold out during the short amount of time it took you to o travel and buy the tickets physically.
Here is a video about the concert convenience fee:
Tucsonnewsnow.com also carried the news about University of Arizona charging students convenience fees. The school is adding a 2.5% convenience fee for the use of a credit or a debit card to pay for any bill inside the school. That could be small per transaction but totals to lot during the year considering all the student loans being shouldered by the students.
Fees to avoid
There are other types of convenience fees we can avoid to maximize every dollar we get and to help save on purchase cost.
Overdraft fees
Knowing how much you have in your account can actually save you a few dollars on some occasions. When going out to do a scheduled grocery or just a quick errand, it is helpful to know how much you have in the bank if you will use your card. This is because once the payment charged to your account is more than what it has, your bank will charge you overdraft fees.
There are banks that offer overdraft protection and it is best to explore this option to prevent unnecessary add-ons to you your bill. One way to prevent this from happening is to use cash when paying. This lets you know how much you actually have and how much you can actually spend.
Late Fees
Knowing your payment due date is important to avoid late fees. Your due date is when the payments are deemed payable by your lender. This is the date that you should make a payment. Failure to send out a payment can result to late fees being added on your bill.
One way to address this is to ensure you pay before on time. By knowing your due date, you can easily make advance payments or anticipate that the bill should have come in prior to this date. Another option is to subscribe to auto debit payments. It is convenient and easy as the payments are automatically taken out and sent to your creditors. Just ensure there are enough funds to cover the transaction.
It is helpful to note as well the difference of due date and grace period. These two co-exist in the finance world and are often misunderstood which has credit score implications. Due date is when the payment should be made but most creditors has a grace period. This allows you to make payments without being assessed late fees. But check with your lenders as some payments received during grace period does not have late fees but are already considered late.
Preventing Additional Fees
There are a couple of things consumers can do to prevent these fees from ever touching their income.
- Cash is king. This mantra has helped a lot of households deal, manage, reduce and even pay-off debt. By using cash, you are visually aware of the money you have for purchases. You are able to hold the money and count them with your own hands. This increases our value for money and could help consumers stay away from impulse buys. But this is not to take out credit card in the equation. It still has some benefits and knowing when to use cash or credit is important as well.
- Budget. Creating a monthly budget for income and expenses should come in handy. This gives you an idea on how much money is coming in and how much you can use for expenses. It can also help consumers track their savings, emergency fund and even retirement chest.
- List. When going out to buy items, make sure to carry a list of the things you need. The importance of having a list cannot be emphasized enough. One thing is that it reminds you of what you need and prevent you from picking up unecesarry items. Another is that you have a place to out the prices of the items you bought. This is handy when you are budgeting and making forecasts.
