Wednesday, January 10, 2007

Pay Your Bills Right Away

When I managed our bills, I had a just-in-time payment system. I rationalized that I was maximizing the interest earned on our money by doing this. My wife now manages our bills and uses a different method. She pays our bills right away. After seeing both methods in action, I prefer the "pay right away" method. Here are the reasons:

Payments are ALWAYS on time. While I was very good at meeting the payment due date, I would occasionally miss a deadline. To remedy the situation, I would call the creditor and ask for forgiveness. Usually, the late payment charge and interest were removed. Now that we pay right away and never miss a due date.

There is a buffer for errors. When I missed a due date, sometimes it was my fault and other times, the mail system was at fault. Since we now pay right away, a delay of a few days doesn't make any difference. The due date is still over two weeks away.

Any penalty was usually greater than the interest earned. Delaying a payment of $1000 until the due date earns about about $3 interest for a month. However, the penalty for missing the payment would be $10 to $20 for that month.

More mind space. Since I don't need to worry about meeting the due dates, I can invest time thinking about other ways to increase our wealth:-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit:, Clara Natoli

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


Dimes said...

I'm very paranoid about 1) the mail getting lost or "getting lost" where the company doesn't bother to post the check to your account until after the due date or 2) technical failure of websites. When my Discover Card was new, I went to the website on the due date to find that it was down. Luckily I'd paid off the balance a week earlier, but imagine if I hadn't! They say it's not their fault if you have a late payment due to their technical difficulties.

Anonymous said...

You are absolutely right on the money here. That's exactly the kind of "practical" personal finance I like reading about.

We need to take into account some kind of factor of safety before stretching things too much on the "maximizing interest" concept. Murphy's law comes up everywhere :)

Anonymous said...

My dad always said the bill is due when it hits the mailbox.

And I followed that method all my life.
The creditor just gives you a grace period to pay for it. But primarly it is due the minute it comes to your mailbox.

I pay about 95% of my bills right away. And the rest may wait a week.

Taking advantage of the grace period may sometimes put you into a slump.

Anonymous said...

Or, immediately schedule bills to be paid (via online billpay) when they are due. Best of both worlds.