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Credit Cards: Beat the Late Fee

Kimberly Lankford

Getting your payment there late could cost you $35 and boost your rate.

First USA recently charged me a late fee and finance charge, even though I mailed my payment seven days in advance and paid the bill in full. Why did they do this? What can I do about it?

--M.T.M. COSTANTINI, Carbondale, Colo.

For some reason--a slip-up en route or a backup at First USA's payment-processing center--your payment was posted after the due date. Even though federal law requires card companies to credit your account the day they receive the payment, you can't prove when it arrived in the mail. And the fine print on the back of First USA statements says that payments must be received by 8 A.M. on any "normal" business day to be credited to your account that day. It also says there may be a delay of up to five days if the payment is not accompanied by the payment coupon, if it's not received in the return envelope provided or not received at the location shown on the front of the statement.

Getting it there late is getting more expensive, as you found out. First USA normally charges $20 to $35 for any payment posted even one day after the due date. A late payment can also boost your interest rate. One First USA card with an 18.9% rate bumps up to prime (recently 7.75%) plus 15.24% (or 22.99%) if you're late just once, and to prime plus 17.24% (24.99%) if you're late twice in any six-month period.

If you mail your check more than a week in advance but are still charged a late fee--which Gerri Detweiler, author of The Ultimate Credit Handbook (Plume), says has been happening more often than in the past--call the card issuer and explain. It will often waive the fee the first time. If the issuer doesn't give you a break, complain to the bank's regulator and the Federal Trade Commission. They may take action if they find a pattern of problems.

With such high stakes, it pays to send your payment as early as possible and then call customer service to make sure it's been received. You can even send a payment before your bill arrives. Also consider electronic payment: Some companies, including First USA, let you make card payments directly from your checking account.

GIFTS THAT DON'T AFFECT FINANCIAL AID

I would like to make an annual investment for my godson's college education that I would present to him on his 18th birthday, but I don't want to hurt his chances of receiving financial aid. Do you have any recommendations?

--DAVID DEAN, Grafton, Wis.

Pay part of the tuition directly to the college, recommends Joseph Re, executive vice-president of Octameron Associates. Since you're writing a check to the college--and not giving it to your godchild first--it won't be considered an asset on his financial-aid forms and won't be subject to gift taxes even if it's more than $10,000.

Re recommends opening a separate account in your name now so that you can track the investments over the years. When you cash out the account, you can pay taxes from the proceeds and use the rest for your godson's college. If you want to give him a few hundred dollars for books or expenses, hand him a check as he's heading out the door to college, says Philip Johnson, a financial planner in Clifton Park, N.Y. If the student uses the money immediately, it won't be considered an asset, either.

If you want to make a gift before then, you'll probably have the smallest impact on financial aid if you wait until your godson has earned income, then give him some money to open up a Roth IRA (for a list of companies that allow minors to open Roth IRAs, see "Q&A," Feb.; you'll find the list on our Web site at www.kiplinger.com under "Kiplinger's Magazine" and then "Departments"). The money will grow tax-free and be available for college without a penalty, but any earnings used for college that are withdrawn before age 59 1/2 will be taxed.

CHEAPEST FUNDS OF FUNDS

Every financial adviser recommends a well-balanced portfolio of stocks and bonds. Doesn't a so-called "fund of funds" accomplish this goal in one simple, easy step?

--JOSEPH DAUDISH, Westchester, Ill.

Theoretically a fund of funds, which is a mutual fund that invests in several other funds, gives you instant diversification with a low minimum initial investment. But many funds of funds are being criticized because they charge high fees without providing high performance. With some funds of funds, "you're paying another expense on top of the underlying funds' expenses--and that extra layer of fees comes straight out of investors' returns," says Peter Di Teresa, associate editor of Morningstar FundInvestor newsletter.

If you can't come up with the minimums to buy a few mutual funds directly, a low-fee fund of funds can be a good option. Many funds of funds that invest in only one fund family--such as T. Rowe Price Spectrum Growth (call 800-638-5660 for a prospectus) or Vanguard Star (800-635-1511)--don't charge the extra layer of fees. Spectrum Growth had an annualized return of 17.1% for the three years to January 4--versus 21.6% for the average long-term-growth fund--but was about 25% less volatile, so it hasn't been socked as hard in down markets. Vanguard Star had a three-year annualized return of 16.5%--versus 15.8% for the average balanced fund--and was a shade less risky.

REFUND FOR TRAVEL FIASCO?

Last fall I scheduled a trip to a resort in the Dominican Republic. But after I arrived in Puerto Rico, American Airlines canceled all connecting flights to the Dominican Republic and all flights back home because of a hurricane. I was reimbursed for the Puerto Rico-to-Dominican Republic flight but not for the flight to Puerto Rico or the hotel room while I waited. Is there any way I can get my money back?

--STACEY WARTHEN, Annapolis, Md.

Because your problems were weather-related, don't expect to get any more money back. "When you have an act of God, a lot of. things simply aren't covered," says Steve Loucks, spokesman for the American Society of Travel Agents (ASTA).

Airlines are required to compensate only passengers who have been bumped from a flight. Read your travel contract to see whether the agency made additional promises. But anything you receive beyond what's in writing would be a goodwill gesture.

You could try mediation. If you have a dispute with a travel agency or airline that is among ASTA's 26,500 members (American Airlines is a member), contact the association's consumer-affairs department. Send proof that you've contacted the company and given it a chance to resolve the dispute, along with documentation to support your claim, to ASTA's Consumer Affairs Dept., 1101 King St., Suite 200, Alexandria, VA 22314.

You could have avoided the problem if you had purchased trip-cancellation insurance from your travel agent. A TravelSafe (800-863-5618) policy, for example, costs $41 for a trip that costs between $501 and $1,000 if you're age 55 or younger (more if you're older). The policy generally reimburses you for the cost of the trip, minus any refunds, if you can't travel because of bad weather, illness or accident, and several other reasons.

IRAs AND SOCIAL SECURITY

After I retire and start collecting social security, will money taken out of my IRAs count as income and lower my social security benefits?

--JOHANNES VERHAEG Virginia Beach, Va.

Nope. Only earned income affects your social security benefits. Income from investments, savings and most retirement plans doesn't count.

Under current rules, if the money comes from a job instead of from an IRA and you're age 65 through 69, you can earn up to $15,500 this year without affecting your benefits. Beyond that, you'll lose $1 in benefits for every $3 in earned income above the cutoff. After you turn 70, you can earn as much as you want without affecting social security benefits.

COPYRIGHT 1999 The Kiplinger Washington Editors, Inc.
COPYRIGHT 2000 Gale Group