How small late fees and penalties quietly become a second bill
by Shareida Brathwaite
It’s that time of the month again and your bills are due. Sure, you could pay them now but it’s Friday, you just go home and that new episode you’ve been meaning to watch came out. After two weeks of “Oh yeah! I have to pay that bill”, you finally remember to pay that bill but wait… “wasn’t this $203.00 and not $219.67?”
Bills. We all pay them but sometimes… we forget. Not because they aren’t important, but because paying bills is a reoccurring stress-inducing activity that we subconsciously try to avoid. Other times, we just don’t have the funds readily available to settle our accounts, not because we’re financially irresponsible but simply because life happens
Why do companies punish us?
Companies, Banks, etc. charge penalties when a payment is not made by the due date. This usually serves as compensation to institutions for disrupted cash flow, to offset admin costs from processing late payments and to discourage you from making late payments in the future.
Companies can charge these penalties as a fixed fee, a percentage of the total or with interest that accrues until the entire amount overdue is cleared. They’re also completely legal once included in the ‘fine print’ of any contract or invoice.
Some economists argue that late fees can affect customers differently. Those who routinely pay on time may never encounter them, while those who frequently pay late may end up paying substantially more for the same service.
The second bill
In the moment, a late fee seems small, maybe insignificant in the grand scheme of things, once you remember to pay on time next time. However, most of the time, that doesn’t happen. Looking at a single late fee makes it seem insignificant. Looking at a year's worth of late fees tells a different story. Here’s how those late fees add up over a year.
Let’s assume you have bill with a company that charges a late fee at a percentage of your monthly bill of 5% and that you pay on time… sometimes.
| Month |
Monthly Total |
Late fee |
Grand Total |
| January |
$275.75 |
$13.79 |
$289.54 |
| February |
$243.89 |
- |
$243.89 |
| March |
$250.50 |
$12.53 |
$263.03 |
| April |
$267.42 |
$13.37 |
$280.791 |
| May |
$242.54 |
- |
$242.54 |
| June |
$261.79 |
$13.09 |
$274.88 |
| July |
$268.88 |
$13.44 |
$282.32 |
| August |
$249.97 |
$12.50 |
$262.47 |
| September |
$252.56 |
$12.63 |
$265.19 |
| October |
$252.34 |
- |
$252.34 |
| November |
$273.34 |
$13.67 |
$287.01 |
| December |
$298.64 |
$14.93 |
$313.57 |
| End-of-Year Total |
$3,137.62 |
$119.95 |
$3,257.57 |
As we can see, you end up paying almost $120 in late fees. That comes up to almost half of another monthly bill! Imagine if you forgot to pay on time those 3 months. Late fees would total $156.89.
The bottom line
Even though the calculation above shows the fees for one bill, the average person has to pay 4-5 bills. That could mean at least an additional $500 at the end of the year if you’re also occasionally late on those other bills. Over time, those small, almost invisible late fees turn into another annual expense that you didn’t budget for. Those fees can have implications on your everyday life, your financial goals and in some cases, your life goals. For example, multiple late payments on a credit card bill can lower your credit score and possibly prevent you from acquiring a car loan that would otherwise improve your life.
A single late fee may not seem like much, but when small penalties become a regular habit, they quietly become a second bill that provides no additional goods nor services. Just a slow leak in your budget.
