I stuffed up: I forgot to pay my credit-card bill. The amount wasn’t much–$190.54–but because I didn’t pay it before the due date, the bank charged a $5 late-payment fee and $12.24 in interest*. I also had to pay all that was owing on the card, since interest-free days only apply on purchases if the closing balance is paid in full on the due date of each month. 😦
While it’s good to put off bill payments for as long as possible, it’s baaaaaaaaaaad when you fail to cough up when the money’s due. Nasty things happens: extra fees, accusatory letters from the creditor, utilities being turned off…Continual late payments also affects your credit rating, making it harder for you to leverage a good deal whenever you want to borrow money.
So what’s the best way to tackle bills? As mentioned above, putting off bill payments for as long as possible is in your best interest. It allows you to make money off money that’s already been spent on something else. Sure, the 14 days’ worth of interest made off $190.54 isn’t much, but it does add up over time.
However, delaying payment until the due date has its risks. If you’re a spendaholic, you’ll probably dip into any bill money that’s sitting idle in the savings account. Hence to avoid temptation, you’ll need to pay your bills straightaway or lock the money up into a hard-to-access high-interest savings account.
If you’re forgetful**, you might miss your payment and end up being whacked over the head with extra fees. To avoid this, deal with the bill as soon as it arrives and use the delayed payment tool on BPAY. Direct debit is another option but make sure that the amount comes out on the due date (and not a day before) and that you won’t be charged processing fees.
Those who aren’t slaves to their credit cards should pay their bills with plastic whenever possible so that they can extend their money-making period. However, they should attempt this only if the creditor doesn’t charge credit-card-payment fees and the credit-card company treats the transaction as a purchase and not a cash advance. Unlike purchases with their interest-free days, cash advances accumulate interest at the get go and usually at a higher level of interest.
Sounds like hard work? Perhaps. Unlike watching 8 episodes of Smallville however, being savvy with bill payments pays off. And it won’t ruin your eyesight either.
*An addition: Rhonda Perky ‘miscalculated once and didn’t pay the full amount owing’. When, she rang the bank to make sure she had cleared everything, they waived the interest because she had a good history of paying the closing balance in full. ‘I was lucky’, says Rhonda in her Tweet. Thanks for sharing your story with us, Rhonda.
**A tip for the absentminded: ask your creditor to send out a payment reminder via SMS or email. Most businesses are happy to do so since they want you to pay on time every time.