Money Matters

Lump sum payments versus regular payments

Not so recently, I briefly mentioned direct debit, a blessing for those who forget to pay their bills. Regular payments are another option for bill payers. While many businesses request a lump sum payment, some offer the choice of smaller and more regular payments. For instance, Yarra Valley Water can charge consumers fortnightly or monthly via their Smoothpay system.

Lump sum or regular payments, which is better? Each system has its pros and cons:

LUMP SUM PAYMENTS

Pros:

  • Can attract discounts, especially for products like insurance policies.
  • No extra administration fees.
  • Cash is a payment option.

Cons:

  • Can put a big strain on household budgets during periods when bills are due.
  • For products and or services that have to be paid upfront/in advance, there’s a potential loss in interest earnings.

REGULAR PAYMENTS

Pros:

  • Easier to budget for on a weekly/monthly basis.
  • Easier for those who have difficulty putting aside money for large payments.
  • Convenient as it is often based on a direct debit system linked to a transaction or credit-card account.

Cons:

  • Can attract an administration fee.
  • There’s a potential loss in interest earnings for bills such as council rates.
  • Very difficult to pay by cash.

Choosing to pay in one hit or in increments depends on cash flow, spending habits, and the product in question. When my finances are in order, I like to make a lump sum payment on the final date my council rates are due. This maximises the amount of interest earned on my bill money. When I’m cash-strapped, however, I end up making regular repayments on my council rate bill. Even though I have to pay earlier than usual, losing out on interest earned, each payment is small enough to be absorbed into the weekly budget.

And now over to you. Do you make lump sum or incremental payments and why?

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