6 Fees That Can Wreck Your Budget
August 2, 2018
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When creating a budget and a debt repayment plan, you likely look at major expenses like rent, groceries, and utilities. However, focusing only on those big costs can be an expensive error. Sometimes, it’s the little charges and fees that can wreck your budget and cause you to fall behind.
6 common and expensive fees
“Little” fees, such as overdraft fees or credit card annual fees, might seem insignificant. But over time, they can cause you to lose hundreds of dollars. Below are six of the worst fees and what you can do to avoid them.
1. Overdraft fees
It happens all too often; money is tight, and you worry about bouncing a check or overdrawing your account, so you sign up for your bank’s overdraft protection service.
It’s a costly mistake. According to the Consumer Financial Protection Bureau, people who overdraw their checking accounts and opt into overdraft protection services pay almost $450 in fees each year, on average. Paying such high fees makes it difficult to set aside money in a savings account, continuing the cycle.
To save money, skip overdraft protection to avoid fees. Consider slashing your budget or launching a side hustle to free up more money each month as a buffer.
2. Late fees
If you’re forgetful, you know the pain of late fees. Whether you missed your rent due date or returned your Redbox rental late, you’ve likely been hit with expensive charges. Late fees can range from a few cents to $50 or more. If you don’t realize your mistake, you could be charged a daily late fee, too.
Whenever possible, sign up for automatic payments to minimize the chances of missing a due date. For accounts that don’t allow you to do so, set yourself reminders on your phone or under your email account to keep you on track.
3. Credit card annual fees
Some credit cards come with enticing offers, such as cash rewards or airline miles. However, those rewards are sometimes offset by high annual fees. Depending on the type of credit card you have, you could end up paying hundreds a year just for the privilege of carrying the card.
Luckily, there are many credit cards out there that offer valuable rewards and do not charge an annual fee. For example, the Chase Freedom Unlimited® card gives you 0% interest on new purchases and balance transfers for up to 15 months. After that 15-month period ends, a variable APR of $17.24%-25.99% applies. You can also earn 3% cash back on all purchases in your first year up to $20,000 spent and unlimited 1.5% cash back on every purchase you make.
Before applying for a new account, make sure you shop around and compare offers from multiple credit card companies to ensure you get the best deal.
4. Account maintenance fees
If you’re not careful about where you deposit and save your money, you could be throwing cash away. Some banks charge account maintenance fees every month, costing you hundreds each year.
For example, Bank of America charges its Core Checking customers $12 a month — or $144 per year — as a monthly maintenance fee. You can avoid paying it by signing up for a direct deposit of $250 or more a month or by maintaining a minimum daily balance of $1,500 or more. Otherwise, you’ll be stuck forking over money just for having a checking account.
Before opening a bank account, make sure you understand all of the associated fees. If your bank charges maintenance fees, look elsewhere. It makes sense to shop around to find a free checking account. For example, USAA Classic Checking allows you to open up an account with no monthly service fee.
5. ATM fee
While stopping at the local gas station to withdraw cash might be convenient, it can be an expensive indulgence. Depending on your bank, you could be paying to take out your own money. In fact, the average ATM fee is $2.97 per transaction. Over time, those small fees can add up, hurting your budget.
Instead, use your bank to withdraw money. Or, if you have to use local convenience stores, try to limit withdraws to just one or two a month, rather than several. By consolidating your withdrawals, you’ll cut down on fees.
6. Transfer fee
Although apps like PayPal and Venmo make transferring money easy, there are fees associated with that convenience. You could end up paying as much as 3% to transfer funds to a friend. If you routinely use the apps, that percentage can eat at your bank balance.
If you use these apps to split bills with friends, make arrangements ahead of time to cover the bill with cash.
Sticking to a budget
Once you get a handle on common and unexpected fees, you can better control your finances. If you need helping getting started, check out our guide on creating a sustainable budget.