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If you think credit card interest rates are high, then you should take a moment to calculate the effective interest rate of a late fee. Federal law caps late fees at $27 for the first late payment and forbids these fees from exceeding the amount of the minimum payment. But if you were assessed a late fee of $27 for paying a $27 bill a day late, it would be the equivalent of paying 36,500% interest on $27 for one day!
While this is an extreme example, late fees can still be very costly, especially when combined with the higher penalty annual percentage rates (APRs) that many credit cards impose after you miss a payment. Thankfully, there are some credit cards that will waive some, or all, of your late fees. But even if you have one these cards, interest will still be calculated based on your average daily balance, so you should still strive to make your payments on-time in order to reduce your interest costs.
Remember, too, it's important to read the fine print of any credit card you are considering to be sure it's right for you. It's also a good idea to check your credit, since a good score will help your qualify for the better plastic out there. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)
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Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
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