5 Fees To Catch Because You Might Be Paying Them When You’re Broke
A large percentage of the U.S. population struggles to make ends meet.
Just look at the numbers by generation. As per Goldman Sachs, 39% of Gen Z, 45% of millennials, 41% of Gen X and 18% of boomers live paycheck to paycheck.
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If you’re living paycheck to paycheck, chances are you consider yourself broke. You might also be paying certain fees that are dragging your hard-earned money out of your bank account. Here are the most common ones and how to spot them.
1. Overdraft Fees
Overdraft fees are what come up whenever you overdraw your account — usually a checking account. These fees vary widely, but can be as much as $35 per transaction. While only a small number of consumers actually incur these fees, they can add up.
Check your bank account every month for small or unclear charges. Look for terms like "overdraft fee," "NSF fee" or "insufficient funds fee."
The good news is you can often avoid these fees.
“Keeping your checkbook balanced will help you realize you have insufficient funds,” said Melanie Musson, finance expert with Quote.com.
Most financial institutions also let you link your checking and savings account. That way, if you overdraw from checking, the funds will come from your savings instead.
2. Late Fees
Late fees are another prominent fee that can eat into the funds you have.
“If you are broke and not making on-time payments, you’ll incur late fees in addition to the original payment that is still due,” Musson said.
There’s a ripple effect with late fees. Not only can they add up, but they also hurt your credit. If your credit takes a hit, you face higher insurance premiums and interest rates.
Just like with overdraft fees, check your statements regularly for late fees. Sometimes, they’re called something else, like a “past due fee” or “finance charge.”
You can also check your credit score to see if it’s decreased. If it has, it might be due to late payments.
Prevent late fees by using an app that tracks your income and bills. Or set up payment due date alerts. If your main issue is due dates not aligning with your paycheck, ask your creditor if you can change them.
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3. Payday Loan Finance Charges
Payday loans don’t have interest in the traditional sense, but they’re incredibly expensive. They’re also, unfortunately, targeted toward lower-income households.
“People borrow because they need fast cash and don't realize what they've actually signed up for until the fees start compounding,” said Chris Walsh, senior advisor and regional director at Capital Choice Arizona.
Among each state's various payday loan laws, loan fees tend to range from $10 to $30 for every $100 borrowed. Since these loans usually have two-week repayment terms, that’s basically 400% APR, according to the Consumer Financial Protection Bureau.
Payday loans might seem manageable at first, but missing a payment can lead to excessive fees. And if you end up taking out a new payday loan to pay off the old one, you’re ultimately incurring more debt.
Watch out for those finance charges and always read the fine print before taking out a loan.
4. Life Insurance Policy Fees
Even if you’re in your 20s, it doesn’t hurt to have life insurance — especially if you’re the primary breadwinner for a young family.
“The one that haunts people the most long term is letting a life insurance policy lapse,” Walsh said. “I've seen it multiple times. Someone gets a term life policy at 20 years old, maybe $20 a month for $1 million in coverage over 30 years and somewhere along the way they miss a payment and the policy lapses.”
Applying for life insurance when you’re older often comes with a higher premium. According to Walsh, a 30-year-old could easily pay $40 to $50 a month for a shorter term. And that’s assuming their health hasn’t changed.
This one’s a little easier to spot since you can simply compare what you were paying to what you’re being offered now.
5. Small Quantities 'Fee'
This one’s harder to spot since it’s not a direct fee. But if money is tight, you’re probably buying things in smaller quantities. The problem is, you’re likely paying more in the long run.
“For example, someone might otherwise buy multi-packs in grocery stores, where you can get a per-item discount,” said Mike Pumphrey, accredited financial counselor and a seasoned financial coach with Empathic Finance. “But people who are broke may need to buy one at a time, which over time ends up being more expensive.”
If you can afford the higher up-front cost (and use what you buy), aim for bulk purchases. Shopping at discount stores could also save you money, making this more feasible.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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