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Break free from wallet-squeezing fees

  • Story Highlights
  • In '07, consumers paid $63 billion in credit card fees, over $38 billion in bank fees
  • Credit unions often have lower fees than banks
  • Being late with credit card bill can trigger fee of up to $35
  • Credit card cash advance can carry 23 percent interest, plus fee
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By Jen Haley
CNN
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(CNN) -- Terri Lovin and her husband, Harold, may have had the world's most expensive pizza ... at $117 a pie. No, it's not gourmet dining. A cashier charged the couple twice for the $22.50 pizza.

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Bank, credit card and cell phone fees can take a big slice out of your cash.

That caused the Lovins, who live in Hawaii on a fixed income, to be overdrawn on their bank account by less than a dollar. And that resulted in multiple banking overdraft fees of $24 each.

And that's money the Lovins didn't have. So, the couple had to take out a payday loan to cover these fees.

"It was the most irritating, most expensive pizza I've had," says Terri. "I was in tears for days."

In many business transactions, such fees have become customary. And as the fees grow, so does consumer frustration.

"People are pissed," says Ira Rheingold of the nonprofit National Association of Consumer Advocates. "But they have no idea what to do. It's everywhere. It's become an everyday part of life."

And the price tag is steep. Consumers paid over $38 billion in banking fees in 2007, according to the Federal Deposit Insurance Corporation. And in some cases, bank, thrift and credit union fees have risen by double digits, according to a report released last month by the U.S. Government Accountability Office.

You may not even be aware you're paying these fees. GAO staffers -- posing as consumers -- were unable to get fee information from more than a fifth of banks.

One of the most common bank fees are bounced check fees, which grew three percent in 2007 to over $28, according to a study by Bankrate.com, a financial information company.

To avoid overdrawn account fees, sign up for online bank services, which will allow you to check your balance before making a purchase. And think about getting overdraft protection linked to your savings account.

Credit unions usually have lower fees than commercial banks. To find a credit union in your area, go to the National Credit Union Administration's Web site at www.ncua.gov.

Credit card fees

Fees aren't just a cost of doing business anymore; companies have come to rely on them.

"It's a slow evolution of how their business models have changed. Now, banks and credit card companies count on fees as a major source of their income," says Rheingold. "It's a gold mine for these guys."

Silver Parnell of Albuquerque, New Mexico, knows that all too well. She was near her credit limit, and the finance charge brought her over the limit -- by 14 cents. The fine was $39. That penalty is about 27,857 percent of the size of the infraction, says Joe Ridout of the nonprofit consumer advocacy group Consumer Action.

Parnell, who is on disability and Social Security, says, "I'm disgusted not just for myself, but for other people. These practices are geared to create fees."

Credit card customers paid $63 billion in fees last year to the card issuers, according to RK Hammer, a bank-card advisory firm. That's up from about $55 billion in 2006.

Unless you have money to burn, don't use your credit card to get money at an ATM. It's considered a cash advance, and you'll be charged a fee of 3 to 5 percent of the amount you withdraw. Plus, you forfeit any grace period, says Curtis Arnold of Cardratings.com, a credit card information Web site. The interest, which can be 23 percent or higher, starts accruing immediately.

If you're desperate for cash, use a debit card at a store and get cash back.

But if you have no choice but to use your credit card at an ATM, pay off the cash advance immediately -- don't wait for a bill. That will significantly lower your finance charge, says Arnold.

Overseas credit card spending can cost you an extra 1 to 3 percent from a foreign transaction fee. On top of that, the bank can add another 2 to 3 percent. Before you pack your suitcase, check with your issuers to find out what fees you face on every card you plan to use overseas.

Arnold recommends using a Capital One credit card to avoid these overseas junk fees. "That company doesn't tack on any foreign transaction fees. They even absorb the 1 percent fee from Visa and MasterCard," he says.

Being late with a credit card payment -- even by a few hours -- can mean being hit with a fee as high as $35. And if you pay your bill by phone, you may be charged a fee of up to $15. But if you generally pay your bills on time, there's a good chance the company will waive this fee if you ask.

"The credit card issuers don't want to lose you as a customer," says Arnold. "It costs them $200 to $300 in marketing fees to replace you," he says. Use that as a bargaining chip when you're trying to protest fees.

But the process can be time-consuming. Parnell got her $39 over-limit fee waived after hours of protesting.

"I objected on the phone, in writing," she says. "It was at least six hours and an awful lot of aggravation."

Cell phone fees

"The price of making a call is down," says John Breyault of the Telecommunications Research and Action Center, a nonprofit consumer advocacy group. "Carriers want people to subscribe to data plans. There's higher margin there."

Text messaging is becoming a cash cow.

"One of the biggest increases in fees is text messaging," says Breyault. Many carriers have increased how much it costs to receive or send text messages. AT&T and Verizon Wireless, for example, have increased its pay-as-you-go rate for text messaging from 15 cents to 20 cents over the past three months.

If you object to the increase in the pay-as-you-go text messaging fees, you may be able to get out of your contract. Carriers usually have a clause that allows you to cancel your contract without a penalty if a fee change has a material impact on your service, Breyault says. Make sure you look carefully at your terms of service, then call your carrier and make your case.

If you decide to switch to a different cell phone carrier before your contract is up, you'll be subject to an early termination fee that can be $175 for every line. Some cell phone providers will decrease this penalty the closer you get to the end of your contract.

But if you feel strongly about switching carriers, you may be able to change through a third-party carrier like Celltradeusa.com. The site matches cell phone owners with prospective buyers. You'll pay up to $20 to list the terms of your contract on the site. You may find someone who wants your particular phone or needs a short-term cell phone plan. If you do, your cell-service provider will broker the transfer.

You may be well aware of all the downloading features of cell phones, especially if you have teenagers at home. But did you know that every time you download a ring tone or a game, you may be signing up for a premium service? And the cost can be $1.99 to $5.99 a month. Teenagers are heavy users of this kind of service, so if you have teens at home, pay close attention to what they're subscribing to. If you don't want those services inflating a cell phone bill, call the carrier and put a freeze on this kind of access.

If you want to win a fight with your carrier, your best bet is to wait until you get closer to the end of your contract. Mention that you're thinking about leaving and ask about any fees you would like reduced or waived, or another kind of plan that you're interested in. The cell phone market is competitive, so you can pit carriers against each other to get the best deal.

If you decide to change your plan or add a new service while you're still under contract, make sure you ask the carrier if that change is going to cause you to automatically renew your contract. E-mail to a friend E-mail to a friend

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