How to Avoid Costly Fees and Penalties

Consumers have become so accustomed to fees and penalties that they are often no longer questioned. Accepting that they are a necessary evil, many people simply resign themselves to having to pay extra money for certain services, privileges or mistakes. In reality, these fees and penalties are not just nuisances, they cost consumers hundreds or thousands of dollars per year that could otherwise be used for other financial goals.

Certain industries rely on fees and penalties to add millions of dollars to their coffers each year. When you look at the big picture, it become clear that consumers must change both their behavior and attitude in regards to paying these extra fees to avoid throwing money away unnecessarily. Here we look at fees and/or penalties that people routinely incur that could be avoided with a bit of foresight and planning.

Overdraft fees- At one time the only transactions you have to keep track of to balance your checking account were checks and deposits. That is no longer the case. With direct deposit, electric payments, electronic transfers and debit card transactions, it is not that difficult for an organized person to make a mistake that leads to an overdrawn account. Unfortunately you will pay for such a mistake, sometimes several times over.

If you have overdraft protection, you can avoid a returned check or insufficient fund fee from the merchant, but you still have to pay the overdraft fee. If you do not have overdraft protection, you pay the merchant and the bank for not having enough funds in your account. If you have several payments that hit your account at the same time, the fees pile up at record speed.

Late payments fees- Whether you are short on cash or simply unorganized, missing a payment date will result in a late payment fee. Credit card companies apply these fees immediately, however many other lenders will give you a grace period before applying a fee.

You might be able to have a late payment fee reversed if it is the first time you have missed a payment, however this option is not available for repeat offenders. Late payments not only cost money in the short term but also have a negative impact on your credit score which can have long term consequences.

Early withdrawal fees and penalties- These fees are commonly found with retirement accounts or investment vehicles that have a maturity date. Generally speaking, unqualified distributions from 401(k)s and IRAs will be subject to a 10% early withdrawal fee.

Depending on the type of account you have, you may also have to pay income tax at the time of distribution. Certain savings or investment vehicles also have a maturity date. When money is removed prior to that date, certain fees may apply.

ATM fees- ATM’s offer a convenient way for you to access your cash. Convenience often comes with a cost and the fees associated with ATM transactions continue to rise. It is not uncommon to pay $5 or more per transaction when taking money from an ATM. ATM fees are easily avoidable if you anticipate when you will need cash and plan accordingly.

These are just a few examples of fees and penalties that consumers pay on a daily basis. They might not seem significant alone, however when combined this accounts for a large amount of money that could be applied to other goals.