The CFPB’s rule proposal aims to cap late fees on credit cards, giving consumers more opportunity to pay down debt.
If you have ever paid a credit card bill late, then you have had a late fee charged to your account. These fees can cost you a pretty penny and can add up quickly; late fees can be as high as $32 each time you are late, depending on the card issuer.
Now the Biden administration is stepping in to put a cap on these late fees. Consumers have amassed over one trillion dollars in credit card debt, and as inflation lingers and wages have stagnated, many are falling behind in their credit card payments and finding themselves in debt, and late fees definitely play a part.
The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that would cap late fees. This cap would limit excessive late fees and could save consumers billions of dollars and help to break a continuing cycle of debt.
If you are someone who might occasionally make a late payment — and let’s face it, everyone cannot afford to pay off their credit card in full every month — instead of a $32 late fee, it will now only be $8.
How will this change impact you? If you make a payment late, you will only get charged a $8 late fee, but if you have multiple credit cards or are trying to pay down debt, this cap can also help you manage your debt across accounts, preventing debt from piling up because the fees will be less prohibitive. You will also immediately see the impact of this change if you are trying to get your credit card debt on track.
But remember: Even if you can’t pay your credit card off in full each month, definitely pay it on time. There are other consequences to making a payment late; a late payment history can negatively impact your credit score — and can remain on your credit report for seven years.
There is yet another reason you may keep hearing about paying your credit card bill off in full each month: interest charges. When you carry a balance from month to month, you incur interest on your account. With interest rates being at an all-time high, it can be very expensive to carry a credit card balance right now.
The average consumer has a credit card balance of $6,501, according to a study by credit reporting company Experian. If you carry that balance from month to month and the average interest rate is 20% or more, you would owe at least $111 in interest each month. That amount will only continue to grow — and can quickly get out of hand. Remember: It’s the interest that keeps you in debt, not the late fee.
What are three takeaways from the CFPB’s rule proposal?
1. Set up automatic payments. Take it from a full-time financial writer: get over your fear of auto-pay. I have two credit cards and the one I use frequently, I pay off every month. The one that I don’t use as much is on autopay, and most of the time, that credit card balance is at zero. Set up autopay with your credit cards to ensure the bill is paid on time every month.
2. Create a budget. If you are making payments late and incurring late fees, sit down and develop a budget that includes your credit card payments and accounts for your income and expenses.
3. Reduce your debt. Prioritize getting out of debt. If you are making payments late, you are more than likely overextended. Give yourself some breathing room by reducing debt, which will decrease the amount you have to pay out each month — and leave more money in your pocket.
Jennifer Streaks is Senior Personal Finance Reporter and spokesperson at Business Insider and a financial contributor at The Grio. A nationally recognized expert on money and affordable lifestyle living, Jennifer is an established financial columnist who has been featured on CNBC, Forbes, ABC, MSNBC, CBS, and more.
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The post The Consumer Financial Protection Bureau is capping excessive late fees; here’s how it might affect you appeared first on TheGrio.
