Avoiding Costs Due to Late Credit Card Bills

Yet when Linda returned to the States and wanted to purchase a house, she found that her credit rating had been ruined by her delinquent bills - and the mortgage lender showed no understanding for her valid excuses. She finally obtained a mortgage and bought a house, but she paid a much higher interest rate than she would have with a clean credit rating, costing her thousands of dollars over the life of the loan.

Like Linda, you may find that you cannot rely on credit card statements to remind you when it's time to pay a bill or tell you how much you owe. While living abroad, you need to create your own system of determining when a bill is due and what you owe. For credit cards, that system involves knowing your billing cycle and keeping track of your charges.

To keep track of your charges, save your credit card receipts and note catalog and Internet purchases. Your recordkeeping system can be as low-tech as writing the date and amount of each charge on a piece of paper, or as high-tech as recording your charges electronically with a personal finance computer program. You will use your records to determine how much you owe later.

To determine when a bill is due, you need to know your credit card's billing cycle. Often, credit card billing cycles are 30 days long, with the bill due 20 days after the close of the billing cycle. To learn what your billing cycle and due date are, read the fine print on your credit card agreement or a previous credit card statement. Mark the close of the next billing cycle on the calendar.

After the close of that billing cycle, tally the charges you made on that card during that cycle. Convert your local currency charges to dollars using the current exchange rate from a local paper. This gives you a good estimate of the amount you owe on your credit card during that billing cycle. Add a buffer of $25.00 to guard against exchange rate fluctuations that may affect your bill. Mail your check, with the account number written on it, to the credit card company in time to arrive before the due date. There is no need to wait for the bill. With the check, include a letter containing your account number, the amount of your check and the billing cycle due date for the payment you are making. If you are using a bill-paying service instead of mailing checks, authorize payment at least five business days before the due date to insure that your credit card account is credited in time to avoid finance charges.

When your bill does arrive, keep the bill stub to use the following month. Use the billing statement to reconcile the purchase amounts you have paid with those that were actually charged to determine your account balance at the close of the billing cycle. Normally, this leaves you with a small credit, meaning you have overpaid. This is preferable to underpaying, since you will incur finance charges at high interest rates on the amount you still owe.

At the end of the next billing cycle take the stub you saved, change the printed due date to the new billing cycle's due date. Replace the printed amount due with the new amount due (determined by adding your charges during that billing cycle) and mail the modified stub with your check instead of a letter. You can repeat this process indefinitely, replenishing your exchange rate buffer by slightly overpaying a bill if the buffer gets too small.

There are other ways to determine how much you owe before you receive your bill. After the end of the billing cycle you can call your credit card company, but then you will have an international phone charge. If you can access your credit card account via the Internet you can get your balance that way, but you may incur local phone charges. All in all, the least expensive way to avoid finance charges and late fees, due to the slow delivery of the mail, is to keep your own tally and pay off your card at the end of the billing cycle, even if the bill has not yet arrived.

If you already track your credit card spending you can pay your credit card bills on time every month starting this month. If not, start tracking your spending now to avoid late fees and finance charges beginning next month. Unlike Linda's, your credit rating will be better for it.

Buy the author's book, Personal Finance for Overseas Americans, here, and support Tales from a Small Planet.

Barbara Frew is the author of Personal Finance for Overseas Americans. She holds an MBA in finance from George Washington University and has worked abroad as a financial analyst with Citibank. She has lived in Finland, Russia, and Austria.