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.
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This is not financial advice. Please consult a professional advisor.
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3 comments:
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 :)
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.
Or, immediately schedule bills to be paid (via online billpay) when they are due. Best of both worlds.
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