Reasons to Avoid Carrying High Credit Card Balances
You might think that the reasons for avoiding high credit card balances or obvious. Or, you might simply find that it’s easiest to ignore the size of your credit card balance and simply focus on your monthly minimum payments. The truth is there are important reasons for paying attention to the size of your balance and lowering it that you may not have considered.
For one thing, if you have a lower credit card balance, you may pay a lower penalty fee if your payment ever arrives a day or two late. Many major credit card issuers are now offering credit card late fees based on the customer’s credit card balance. This is good news for customers with low balances because they catch a break on fees. On the other hand, it’s bad news for those with large card balances because they can face the highest late fees around.
Paying a $15 fee for a $25 payment that arrives late may seem like a lot, but it is much better than the standard late fees for credit card customers with big balances. Late payments from credit card customers with balances greater than $1,000 may get hit with $35 fees. Some credit card companies and analysts think that charging customers with higher balances higher fees makes a lot of sense. A credit card company takes a greater financial risk with a customer carrying a higher balance. That’s why they think it’s a smart business decision. But other companies and analysts feel that the logic is faulty. Some card companies simply don’t want to give low balance customers any special treatment for late fees. And some analysts argue that the fees are simply out of control. They claim that these fees are actually charged simply to maximize profits.
Penalty fees do bring in big bucks for card issuers. And it’s likely to stay that way.
There is very little preventing a credit card issuer from raising late fees. The sky is pretty much the limit when it comes to interest rates and late fees. The only way to protect yourself is to become one of the customers with a high credit rating that credit card companies fight for. It is these customers that are often able to bargain with credit card companies to have fees reduced or even waived – even if their payment does arrive late. Of course, the customers with the high credit card balances are the ones with the least bargaining power, and the ones most likely to suffer from outrageous fees.
The best bet for any consumer is to pay credit card bills on time every month. An even better strategy is to only charge what you can afford to pay for at the end of the month and pay off your balance in full on a monthly basis. If you can’t do that, you can still try to limit the new charges you make until you have paid down any high credit card balances to a more reasonable level. Remember that lower credit card balances will improve both your credit rating and your negotiating position.
A credit card company is more likely to be concerned about losing the business of a customer that carries a low balance than one who carries a high balance for two reasons. First of all, the one with the low balance is less of a risk to the company. Secondly, the one with the low balance is more likely to have offers from other competing credit card companies. Finally, the one with the low balance is also the one most likely to simply decide to pay off their card and close down their credit line entirely. For all of these reasons, it’s a wise choice to avoid carrying a high credit card balance.