Money hack: Prepay your monthly bills
Note: While I think this is a good idea, it’s clear that many readers strongly disagree. Before deciding whether to try this, please read the arguments in opposition.
As it turns out, I love this. I know I’m not paying any less money than I normally would, but by pre-paying my bills, I feel as if I don’t have them. I feel as if I’m getting my cable and internet for free. In fact, I’m probably going to write checks at the end of December to cover each of these bills for all of 2008.
Some of you will shake your heads and decry the absurdity of this notion. That’s fine. This sort of money mind game isn’t for you. But if you’re the sort who gets tense from a stack of bills, consider giving this a shot. The next time you have a small cash surplus, prepay three or six months on your phone bill. See if it makes things easier.
(In a way, this is a low-tech path toward paperless personal finance. It’s not actually paperless, but it has the same effect — it decreases the number of things I have to bother with each month.)
Become A Money Boss And Join 15,000 Others
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
There are 73 comments to "Money hack: Prepay your monthly bills".
I had a similar situation with a gas bill in college. The gas company required a $350 deposit (for a bill that was normally $20-30 a month) since my roommated and I apparently didn’t seem like reliable customers. Once we had the service for a year, they credited the deposit to the account and we didn’t have to pay anything until the last 2 or 3 months of the second year.
I agree, it felt great to have “free” heat, even if I had already paid for it.
Just be sure to keep an eye on the bills to make sure you don’t get charged for something you don’t want. Not having to write the check can make you forget that you’re paying for it at all.
I actually considered doing the same thing for my cable and internet bills but ended up doing exactly the opposite. I put the money in my HY savings account.
I prepaid my bills for a year when my husband went back to school. It was awesome. I continue to pre-pay the car and mortgage when I can because it does feel like they just don’t exist.
I do this too, but in a different way. When I first moved out on my own and starting making decent money, I started to pay an extra 5$ on each bill each month (phone, hydro, etc.).
You don’t really notice the 5$, but after 6 months, I was pretty much a month ahead on everything, after a year, 2 months.
I also did my grocery shopping at a store that has rechargeable gift cards. Say my grocery budget was 40$, but I managed to save some money with coupons or sales and only spent 30$, I would put the other 10$ on the gift card. Again, I didn’t notice it since the 10$ was already in my budget, but before I knew it I had about 100$ on the card.
This has come in handy many times when I have had financial surprises. I only had to worry about coming up with rent (which is really cheap where I am). I had the peace of mind that no matter what, I would not have to worry about being albe to buy food, or my phone being cut off. For at least a couple of months anyway.
Watch out! I too like to prepay but some companies don’t “accept” it. Sometimes I get a check back after a little while … sometimes they subtract a processing fee.
I don’t hate the idea – it has its good and bad points.
Downsides:
-Not earning interest on prepaid amount. This will probably be brought up by other posters.
-Need to keep track of when prepayment is up. Watching the monthly statements will be enough to monitor this, but that removes some of the benefit of prepaying.
Upsides:
-Lower chance of a bill “gotcha” when you’re short on cash.
-Even if you have to stay on top of the statements, this means fewer times you have to go through the write-a-check-find-a-stamp /get-online-make-a-payment routine..
-Psychological boost. You described this nicely.
I probably wouldn’t do this unless there is some additional savings for the prepayment. However, I don’t think you’re making a mistake by doing it. Best of luck!
I can understand how “money hacks” can do good things for you, but I have to admit, I’m one of those people who think this is a really bad idea. Why are you giving your cable company a free loan? How many hoops are you going to have to jump through before they return your money if an emergency arises?
I understand it’s a money hack, but it can also backfire on you. Are you the type to start ordering extra On Demand movies or a PPV event now that you have a credit there? Are you going to start downloading extra ringtones and games now that your phone bill is paid ahead?
I love your site, but I think this bad advice. If someone is to ever get a grip onto their finances, they are going to have to learn how to wisely deal with “surplus” money.
I don’t know, Joe, I wouldn’t call this “bad” advice; I think it’s just what J.D. says — that it’s not for everybody.
And in my opinion, I’m totally behind the psychological part of it, though I don’t think I’d prepay for things like cable, because who knows when I might move or want to cancel it (I’m not a big tv fan).
On the other hand, I accidentally prepayed my gas bill (total brain fart moment: we had a huge $350 bill that I waited until the last minute to pay, so it wasn’t credited in time for my next bill and for some idiotic reason I couldn’t remember if I’d actually mailed in the check, so I sent another one). I haven’t had to pay a gas bill in 10 months because of that check (I use almost no gas in the warm months), and I’m kind of thrilled about it, since I had the cash way back then. And even if I move I’ll always have the gas bill. I’m definitely planning to do it again when it finally runs out.
I think this could backfire if you get too used to not having that monthly payment. You find other uses for the money you’d otherwise be putting towards your utilities, and then you have to make payments again…
@katie: How do you prepay your mortgage, all the mortgages I have been a party to require I make my monthly payments every month, no matter how much I paid the previous month.
I do hope you don’t have to move, cancel service, whatever, and have to fight for that pre-payment back.
Folks, this isn’t something that’s appropriate for everyone. This is definitely a case of do what works for you. For some people, the disadvantages (as listed by MS above) are too strong. But for me, this is a nifty little trick. I’ve been using it for six months, and really like the freedom it gives me. That’s why I shared it.
I’ll admit that I would *prefer* to be able to pay these bills via an automatic withdrawal every month. I do that with the gas company, and it’s just as easy and care-free, but I get to keep my money a little longer. But I’ve been very pleased with the first few months of prepaying my bills. I intend to keep doing so.
I wanted to respond to this. I do this as well. If you make enough money one paycheck will pay cable, cell phone etc. pay it for 12 months since they are usually standard charges. Take that extra money over the next 12 months and invest it!!! How awesome!!
It would be an excellent idea if the company gives a break for prepayment. Back in the 90’s, I used to get a free month of dial-up every year with my ISP if I paid in for a year in advance. Do any ISP, cable or phone services do this? They really should offer this as an option – they would get money earlier -and- less chance of people wanting to quit after they’ve paid for months of service (on their end I suppose the extra headaches of repaying the people who -do- quit might make it not worth the effort).
Its great if it works out for you.
But I rather put the money the “pre-paid” money in a high yield savings account. Unless they offer incentives for prepay, why give these companies a free loan?
If writing checks takes too much of time, then use online bill pay from your bank or setup automatic bill pay from the utility company.
Better yet, if you can control your credit card, setup automatic bill pay to your credit card.
I have this setup. I get some interest from the savings account and also some cash-back from my credit card. It’s not much better than nothing.
@Justin – I don’t know what Katie does to prepay her mortgage, but I can prepay my car payment by simply putting in several dated
“coupons” my credit union sent me when I got the loan with one check that covers the number of months I’m sending coupons for. Of course, now I just have my web bank send a check to them every month auto-magically on a pre-set date and I don’t bother with the coupons.
I prepay my cell phone bill but only because Sprint has self-serve payment machines and I can’t resist sticking some Where’s George bills into those when I see them.
You should be able to have the best of both worlds, JD:
Put the money into an account like ING, their electronic Orange has free bill pay (including mailing out checks as needed), and you could have it set up to pay the bill automatically. This would allow you the feeling of freedom you currently enjoy, not have to worry about missing a payment, and you’d make [a lot of] interest on your money in the mean time.
The biggest reason I’m against paying a bill early (that you aren’t being charged interest for), is what other’s have said: Emergencies. If, god forbid, your house burnt down tomorrow, you wouldn’t exactly be able to take advantage of that cable, &c. (not to mention the loss of income due to loss of interest)
Another quick Money Hack: Find out if your power company has a free Budget Plan. This balances out your power-payments over the year/6month.
JD: if you prefer to be able to do automatic payments, deposit the money into a high yield checking account with billpay and setup the payments to be sent automatically. Guesstimate the monthly amount, even high if you want to. Then you can do things like cancel or whatever, still get the benefits you mentioned.
dear god, invest that money instead. why would you give those returns to the utility company instead of giving them to you. you are throwing away money. STOP IT.
There are instances where pre-payment makes sense. I count “not having to worry” as easily being worth the couple of bucks a year I “loose” by not micromanaging these types of payments.
A couple that I do this way:
– Small bills. When a monthly bill is small enough, the cost of postage can dwarf any potential investment you could make with a prepaid amount. I have a couple of bills in this category that I handle this way. Less of an issue with automated online payments, but still an issue.
– Variable bills. I *love* having automated payments set up… direct deposit comes in, bills go out, and I don’t have to worry about it. This works very well for constant payments (mortgage, tuition payments, etc.) but poorly for variable bills like utilities (phone, electric). In these cases, I schedule an automatic payment that’s enough to cover the “high water” marks. This results in my building enough credit to cover any unusual fluctuations in payments – again, so I don’t have to worry about it.
– Installment payments. Our monthly “bill” for our oil heat is actually an installment payment on a yearly plan. Pre-payment actually reduces our overall bill, since we’re buying next month’s fuel at *this* month’s prices.
– Paying up front to get a discount. Magazine subscriptions are a great example of this… if it’s something you will read/use (in my case, professional journals), you can get significant savings from paying for a 3- or 5-year subscription in advance. As an added bonus, things like magazine subscriptions, shopping club memberships, etc. tend to increase as time goes by, so you’re really buying five years of something at a discount on *this* year’s prices, to boot.
@tim: You can pay whatever you want on most car loans, they are using a different payoff system than mortgages. I am currently a year ahead on my car and wouldn’t have to pay it til next christmas. I amd also a year ahead of schedule on my mortgage but still must make a payment every month.
Nothing like providing an interest-free loan to the utility company. Sock that extra into a savings account where it’ll work for you and find another way to trick your head. Sorry, but I think this is really bad advice.
(Quite happy with everything else here though 🙂 )
great idea JD.. this is something i used to do also.. i would put 1k credit on my cell phone bill (because i knew i would have that contract for a long period of time)..
but since almost all my bills are set on automatic anyway.. i don’t bother doing this anymore.. plus the extra cash i have could be getting interest in a savings acct.
but i still like the idea.. paying in advance.. you gotta love it
I use a bill-payment service (PayTrust) that lets me schedule payments automatically, using an *interest-bearing savings account* as a funding source.
My bills get mailed to South Dakota, where PayTrust scans them in (PDF!), and then types in the details. I get an e-mail that says one of the following:
* Hey, you got a bill, here’s the amount due (minimum and total)
* Hey, you got a bill, I’m paying it per your rule to always pay it if it’s less than $x
* Hey, you got a bill, it was more than your rule says to pay automatically, please do something.
In addition, all my bills (and records of payment!) for the past 3 years are searchable, I can create reports for my spending categories, and I can buy (cheaply) CDs with all of my bill and payment history on it.
If I pay through PayTrust and the payee doesn’t post payment, I ask and PayTrust will call them to work it out — for free.
If I don’t receive a bill I expect (e.g. if a monthly bill that usually arrives by the 9th doesn’t show up by the 13th or so), PayTrust e-mails me to tell me “hey, you didn’t get a bill. Here’s the customer service number for the payee.”
I have no stake in the company (it’s owned by Intuit, IIRC), just a happy customer for almost 10 years!
JD.. i understand why you are doing this.. do what works for YOU!
it’s a great feeling to know you have bills paid for (for months / even a year in advance).. and at the same time you have income coming in that you know is YOURS to keep!
I think this is similar to which loan to you pay off first (the one with smallest balance or the one with the highest interest). For those of us who follow Ramsey’s baby steps and pay of the smallest loan first, money is more psychological and prepaying bills probably fits better. I prepay bills that give me a discount for doing so (insurance, taxes, etc.) I also like the idea of being a month ahead on bills but I don’t pay ahead on any monthly bills mostly because I find errors in my bills on such a regular basis that I wouldn’t want to pay ahead.
I just talked about this with one of my co-workers. He’s been pre-paying bills for years. He, too, likes the peace of mind that comes from not having to worry about payments every month. He made two points:
First, while it’s true that you are essentially providing an interest-free loan to your utility company if you do this, you’re not sacrificing a lot. It’s a few bucks a year. He looks at it as paying for a luxury. For example, instead of buying a magazine or a coffee, he’s paying a little something to prepay his bills.
Second — and this is in support of those of you who say this is a bad idea — he notes that there have been times where he’s lost track of things. When this happens, he ends up with late fees because he hadn’t realized it was time to make another payment.
I’m paying attention to all of the comments against this idea. But from what I’ve read so far, I still believe that this is an excellent option for certain people. (I’m ready to be proven wrong, however!)
I don’t usually do this for bills, but I sometimes do something similar for credit cards: sometimes for credit cards I will make a payment as soon as the charge comes through.
It’s a neat idea, prepaying. But it’s not for me, and that’s OK.
I think I’m going to give this a try. I like the idea of not having to worry every month with paying the bills.
However, I am in Colombia S.A, so I’ll have to test the waters a little first.
JD- I’m really struggling to get this! My utility bills are paid by averaged direct debit, which means I only open bills to check for discrepancies, and for which I get a 5-6% discount (because the payment processing is cheaper). Even so, I get angry over the few dozen pounds I’m giving as interest-free loans; the gas and electric assumes I’ll consume loads over winter (which I can’t disprove until after winter), and that my TV license billing starts 6 months before the license starts (bad enough you have to have a license for a telly in the UK without that salt in the wound!). Why would anyone voluntarily give up their cash, especially when there’s no benefit to it? Umm- can I ask that someone rings their utility co, suggests that they’re interested in pre-pay, and ask for a discount/money off/credit on the account (they’ll make loads more in saved labour costs and interest than they’d give you!), and report back what they say?
I actually did this once by accident with my electricity bill. I overpaid because I hit an extra one, paying 119 instead of just 19. I had the cash to spare at the time and that wound up paying my electricity bill for several months. It was nice to not concern myself, and helped me shuffle cash around for other needs, too.
It was _really_ nice, actually. A habit worth being in, if you ask me. I’d nearly forgotten about it until this article. Maybe the next time I find myself in a stable spot with extra cash, I’ll throw it into pre-paying one or more of my bills.
@Tim
The only companies that i have seen that still give you a deal if you prepay for a year or so at a time are Gyms. My insurance company gives you a lower rate if you do the yearly payment, but not in the same way. The quote they give you assumes you are paying for a year in advanced, if you decide to go month to month you pay more.
I agree that pre-paying isn’t really a great idea. This presumes that your bill will always be the same. It’s much better to get an interest-bearing checking account and setup an auto-bill pay through it, and regularly fund the account. I’ve done this before, and I just put in what I expect to need for six months, and that’s that. That way, you earn some interest, save on stamps, and save on your personal time. The only caveat is if the bill is variable (e.g. cell phone, credit card), you *do* still need to check the statement. I receive notifications of all my bills via email, and most of them tell me how much is due that month, so I don’t have to logon to a website.
A couple times, I’ve overpaid something or had to get a refund, and it would take weeks and weeks before I could get my money back.
I can understand the psychological aspect of this. Sometimes this can be more important than the few dollars you can save/earn. But I can’t help recalling an employer I used to have who wrote out the bills then dated the envelope in pencil. The date was when they needed to be sent so he could maximize the money in the company account. This worked for him because he had the bills ready to go once he received them and he was able to organize when the money would come out of his account. I try to do something similar in that I date when I have to pay a bill by on the envelope so I can keep track of what needs to go when.
I’ve only pre-paid monthly bills after negotiating a discount for doing so. I did that with my gym membership. If someone is interested in pre-paying a bill, why not call up customer service to see if they can work out a deal for you if you pay 6 months or a year in advance. They might work with you.
Currently, I do not pre-pay my bills. Simply because if something goes wrong with their service, etc., they already have my money. I can’t use a future payment as a negotiating tool. If they owe me money for some reason (like overcharging), I could miss that, or it could be a hassle to get back.
Pre-paying isn’t for me for the reasons above, but I can see why some folks like it. I would just say try to negotiate a discount for those advanced payments.
I made a deal with my landlord this year–I paid a full year’s rent and utilities, with security deposit, before moving in; in return, I got access to the room two weeks before the lease started (it was not leased for the month between the last guy and me). This let me move at a reasonable pace, doing a carload every other day over the two weeks, and he got all the money up front.
Now, I have no monthly bills, and I feel much freer in my finances–although I do feel like I should be saving some money each month to go towards next year’s rent.
I did this on accident with my water bill. We had just gotten back from an international vacation and I was submitting bills online. My water bill was $13, I accidentally typed $130 and didn’t notice. So I haven’t had a water bill since April, which has been really pleasant. It’s not something I will probably do again, and the water bill is our least expensive bill, it’s just nice to see a credit remaining each month. It is all psycological, but I am exactly the kind of person this appeals to.
If you have BUSINESS expenses, it is excellent to prepay A FEW DAYS BEFORE JANUARY 1. This way the expenses can be deducted a year earlier. You deduct them before April 15 when you send in your taxes. If you pay the bills Jan. 2, you must wait until the FOLLOWING April 15 tax period to pay them. Get the deductions a year sooner!
A slight tweak on this that I do is that I round each bill up to the next dollar. If the bill is for $57.72, I just write the check (or make an online payment) for $58.
I made a Google Spreadsheet showing how it works.
This does three things:
One, it makes it simpler when I’m entering the data into PearBudget.
Two, I can scan over the numbers for the year and more easily pick out trends and rough averages.
Three, it mitigates risk, in case I want to cancel the service, or whatever, I haven’t already committed to more months than I can handle.
While I don’t prepay bills, all bills I owe are direct debit. Even the credit card balance is paid off each month in full by direct debit. I go away and don’t worry if I forgot to pay something before I left. The only checks I write now are for charitable donations and one-off oddball things. This works for me since I’m the kind of person who used to put the bills in a pile and promptly forget about them. Now there’s no paper to lose–I can look at my bills online and most businesses archive them for 7 years.
Giving interest free loans to large companies just helps the rich get richer and you get NOTHING. Every little bit helps when compounding interest. Don’t throw it away. The only reasonable response in favor of doing this above is the one regarding tax/prepaying before 1/1/next year.
Personally I prefer to automate everything and just make sure there is enough in the acct to cover everything. But I do admit for the pesky companies that do not have an auto draft (like my water bill), I send them a 3 month advance check to save on stamps and check writing. Though if you have a windfall of money, and CC debt, I suggest paying down debt first and prepaying later.
One other gotcha to keep in mind: if the company you’ve prepaid goes out of business, your money’s gone with it. I remember our local radio consumer advocate warning listeners against prepaying for internet service back during the dot-com boom for just this reason. Obviously with things like utilities, the risk is much smaller.
The only company I ever did this with was my water bill, which didn’t have electronic draft at the time. Any potential interest lost was offset by not accidentally getting the late fee, (or maybe it was the early payment rebate that I lost), but anyway it was more expensive than any potential interest gained when it did happen.
But absolutely you are better off if you can get it drafted, don’t have to mail it, or you are just too anal to: never forget, run out of stamps, not think about it when you go out of town, forget about a holiday, have a cat knock it off the table and under the fridge, etc.
Personally, I don’t do this because I would lose track of when my money “ran out” and end up missing a payment eventually. However, I know a lot of creative types (artists, writers etc.) that do this when they get an advance or a commission. They pay their utilities etc. way in advance while they know they have be money because their income can be very up and down month to month. A way of sort of “forced” budgeting…they pay for stuff they need as opposed to being tempted to blow through what can seem like a windfall. I can totally understand paying ahead in a situation like that. No worries about the electricity getting cut off between big assignments.
I don’t think anybody should apologize for paying their bills early! That’s great. Online bill paying is the best thing since sliced bread. I pay each bill as it arrives because doing so is 1) so quick and 2) because I get to see the 0 balance next to my charge card, and I never get tired of seeing that. Whenever I go out of town, it’s so handy because I can prepay all my bills. I just guess a little higher for ones that aren’t fixed, and the next month, the adjustment is made, so no problem. Love it!
I respect everyone’s right to manage their finances the way they see fit. But the pre paying of cable and other utility bills at the start of the year raises some questions for me. It’s clear that this money being used to prepay these bills is not need for immediate costs. I am guessing that the person who prepays will pay his or her bills early trick themselves into thinking they have lower cost of living then they do and build up a similar surplus over the course of the year and do the same thing over and over again. I would see this money better used in paying off that pesky mortgage or some other high interest loan, or if you are loan free place the funds in Roth Ira or some other investment vehicle. To me it seems the cash flow system put in place has a fatal flaw with a higher cost that the user is aware of as that say thousand dollars is used to pay off a 6% loan or placed in an investment that will return 6% its going to save 2,300 in interest or earn 2300 dollars in returns. Assuming a twenty year loan or investment at 6%.
Excellent post. If I had the money to, I would do the same and pay my bills ahead of time.
You forgot to add that people can pay their credit cards even when there is no balance. This allows a stress-free month not worrying about credit card bills.
I’ve done this before by paying about $1,500 to my credit card when I had no balance. The result is when I use my credit card to charge, I don’t have to worry about the bill. Some might say this causes more spending, but not everyone spends a lot.
-Mike
The only thing I’d like to add is this of course assumes that you have a cash surplus. I haven’t had a cash surplus in 9 years.
I second the dissent above (a post urging against credit cards, giving up a short term loan and 1% cash back because you may overspend, was even worse)! By prepaying your bills you are losing money! Set up automatic billing online (most companies allow for direct debit payments that send an email statement when you’ve paid). As for the rest who insist on paper statements (I don’t have any), take the few minutes and pay online through your checking or savings account. You can’t have that many bills that its worth the time saved (if you do, you need to find out what you can possibly do without). A post directed to how to set this up for those in the dark would make more sense than giving your utilities a short term loan and an easy opportunity to overcharge.
On a somewhat related topic, I’d like to see a post on how to get rid of all mail (that isn’t a birthday card from my grandmother) to save my time and the environment. I’ve looked into junk mail lists and even e-mail organizers/converters (see Earth Mail) but an organized post on this topic would be great. thanks!
On another note, I actually enjoy sitting down to pay my bills. After so many years of struggling to pay them, I take joy in having more than enough. Now that I’m almost debt-free, paying bills is a way for me to celebrate prosperity.
(But I do have auto-pay for free, so I guess I’m not actually writing checks and using stamps for too many bills most months!)
I also prepay my bills but not the same way you do.
I get paid every 2 weeks. Knowing that my monthly phone bill is in the $55-$60 range, every two weeks (on payday) I give the phone company $30. I pay it online through my bank. Splitting the bill amount in half and paying it in “installments” allow me to be sure I’m not spending my bill money on something else. When I get the actual bill, I normally have a small credit that gets rolled over to the next billing period, or a very small amount owing, which I pay immediately.
This is especially useful with larger less frequents bills that do not offer equal payments, such as hydro. The billing period is for 60 days and I’ve had several instances when a bill was not received at all. Bills range from $100 to $350 depending on the time of the year. Not something you want to open and realize you’ll have to be creative to come up with funds. So I gave them $50 per pay, building a credit over the summer and seeing the credit disappear over the winter. At least I know this way I’m not going to wake up to a $350 bill.
I’ve recently switched to a green energy provider and you have no choice but to pay by automatic withdrawal (you can also opt out of the paper bill, yay!). So I’ve been moving the $50 a pay to a seldom used saving account, moving the cash back to my everyday account the day the withdrawal is scheduled. I guess I could have done that all along but I get service fees if I use the savings account too often.
I too prepay my bills to some extent. Because my husband’s income is seasonal, in the months that we have more money I pay the bills for the months that we have less.
I check my statements every month to see what my balance is and when the next payment is due, I try to pay something every month even if it is a partial payment, that way I can save my prepayment for when there is only money enough for food or when one of us can’t work for some reason.
I have been doing this for over 3 years and we have a much stronger credit rating and have saved thousands over that time in late and overdue fees.
I try to stay about three months ahead. That way we don’t risk losing the house or cars, should we lose our job or can’t work. There is a trick to prepaying loans like this, you first have to call the loan company and make sure they accept prepayments then on all you payments should be written “APPLY TO NEXT PAYMENT”, otherwise with home loans and some car loans they will apply it as a principle only payment and you still have to make a payment next month.
I also add $10 to each car loan or house loan to pay it off faster. It isn’t much but it has helped me save thousand in interest on car loans and I have paid them off much faster, of the three cars we have only one still has a balance and it will payoff in the next few months.
I find that the stress that it saves us and the security of knowing that the power or phone won’t be shut off is so empowering.
I have also managed with this plan to prepay (save) about 1 semester’s worth of my son’s university tuition & housing into a money market account. So I don’t have to use the college’s payment plan that cost us in added interest.
If someone is committed to getting out of debt and to start saving money for a rainy day I defiantly believe that prepaying bills is the way to go.
An Addition to my last post:
You don’t have to have a “cash surplus” to get started, when we started our house was on the brink of foreclosure and I was getting 7 to 8 collection call per day. So here are some of the basics:
1. Use a bank debt card that will not allow you to overdraw the account, some banks have check cards and you can overdraw your account and be subject to overdraft fees, you want one that will only allow up to the account balance. Use this account for everyday things like gas and food.
2. Use the online bill pay feature through your bank, lots of companies like power companies and car and house loans have websites where you can make payments, do not use these, they charge more to make a payment through them sometimes as much as $20. Your bank may charge a fee to use their online bill pay but is usually less about $10 per month.
3. Use a second account for just paying bills! Don’t mix the two accounts (every day and bill pay)!
4. Schedule your bill payments to auto pay the day after your paycheck is deposited. Use direct deposit of your paycheck into a savings account first. Then distribute the money to the bill pay and everyday account and leave something even if it is $10 in the savings account every paycheck.
5. NEVER, NEVER, NEVER, use payday loans or title loans or check cashing, use a bank, if you can’t make it on the check you are getting, then getting less from your next paycheck won’t make the situation better.
6. Lower your expectations, too may of us live like we have more than we do. When you look at other people that have new cars and big fancy houses, 9 times out of 10 they are swimming in a sea of debt. Live in a smaller place, eat out less (once a month for us), pay off your car and drive it for ten years, and pay off your debt, don’t use credit cards and you will be better off then those that LOOK like they have it all.
7. When you have a $500 balance in your savings account, then that is considered $0, don’t ever allow or be tempted to use that last $500, that always stay, keep adding to it and when you have enough to pay ahead a bill, like car insurance is a good one, do it. If you pay your car insurance once per year you can often save money, because there are monthly payment fees. After you have made that payment, then leave the amount of the monthly payment in the savings, for next year.
8. Use a accounting software, like quicken or money, if you want a free one there are lots of open source ones on the web, I use gnu cash. It helps you to see where you spend money and on what, when you enter your bills use the split transaction to denote late fees, overdue, and interest. You will be amazed how much money you spend on using other’s money. If you use quicken or money they have a calender, use it to see what bills are coming up and where short falls will occur, then adjust payment so that you can cover that time.
Anyone can do this and get out of debt, excuses don’t pay the bills.
I tried this with the car insurance, and it worked well. I just have to make sure I am going to be able to cover the whole premium again in 6 months. The feeling of being ahead of the game is great, but like some people said it can backfire if you are not careful. It can work very well for some people, everyone is different… : )
Years ago I prepaid by a few months until about 4 months into it I got burned. My internet company went out of business and my utility company became Reliant Energy, who decided my credit with the previous utility entity was not their concern. I never got my $ back, tho I tried like crazy.
But to compromise, now I changed all my due dates to after the 20th of each month. The ones that wouldn’t change the due date? I simply paid one month (only) in advance. Now all bills are paid by automatic bill pay on the 1st of each month. I check my bank statement and my bills’ statements online that night or in the next few days. I have absolutely no stress. I don’t feel like I live paycheck to paycheck.
My bank and bills’ websites are bookmarked in a folder and the passwords come up automatically when I open the pages. Firefox lets you open all bookmarks in a folder at the same time. So the entire “paying bills” process takes less than 10 minutes. (I do live in Houston, not a small town, so there’s pressure on companies to show online statements. I can access ALL of my bills online.)
I’m working on getting 3 month’s reserves in the savings account attached to my “bills” checking account. That seems to give me the same sense of peace as prepaying the bills by 3 months. I can be the biggest frugal person on the planet about saving $.30 at the grocery store, etc. But I’ve achieved a life balance and willingly give up the $250 (or whatever) I would have earned had I not “prepaid” my bills in such a way. There are very few things I give up my frugalness for. This is one of them.
How much does your peace of mind cost?
My question is this: what’s your purpose in pre-paying?
I used to pre-pay bills. My purpose was simple. I worked at the time in a highly demanding job that kept me on the road a ton. It was tough to keep up with the mail. It wasn’t an issue of not having the money or budgeting, but a desire to avoid service interruption.
But I realized that it was a poor substitute. What I did instead was enroll all critical bills in an automatic electronic debit program. Now, in fact, I have a greater awareness of them. I know the bill isn’t going to not go unpaid and if I didn’t get to the bill envelope, I am reminded of it when I see the debit in my account online. Of course, I run the risk of errors being resolved with me having to seek refunds, but I’m okay with that. It’s a cheaper solution than me paying a company like PayTrust (although, I’d love the archive of all my bill records — man that would be nice).
So what’s your reason:
1) is it for cash-flow concerns?
2) is it to avoid service interruption?
Those are the main reasons I can think of for why to do it. A third, which is in essence a proxy for budgeting, strikes me as a really poor reason.
And it goes without saying that there are limits to when pre-paying is an option and alternatives to accomplishing the same goals you might be trying to do with pre-paying.
Wow! It’s scary to see how many people are so close to broke that if they pre-pay some bills and have an emergency, they couldn’t come up with the cash!
I have plenty of money in savings, so I’d be able to take care of bills for about a year before I really felt a pinch, but it’s a great idea for most people to pay a month ahead in case something comes up and they can’t afford to pay that month.
Have to be careful with prepay. I have had a few problems with it. Once with a discount long distance company. Our bills were so low we prepaid a nice round number, turns out to have been about 4 months service. Each month we got a bill saying don’t pay you have a credit. At the fourth month we finally owed like $2, which they promptly sent to collections because we had not paid a bill in three months. Of course I didn’t pay, I had a credit. Ran into similar problems with the electric company. We switched
A/C units so our precomputed budget amount was way too much. The next year we didn’t owe anything for about 6 months. Caused problems with the electric company. Now if we are running a surplus (like to pay extra on electricity in winter to overcome the A/C ouch in summer) then if we find we don’t need to pay, we still make a token payment $5 to keep their accounting system happy. We also prepay our mortgage by at least on month. One month something got lost in the mail. Being ahead a month kept us from being behind. But we still have to watch the bank. Despite always including the mortgage coupon for the appropriate month we have to watch and make sure they don’t credit it all as this months payment.
By the way nice comment system. It’s hard to edit in the small scroll box but the large (as posted) windows allowed me to see some typos.
Ideally, one would put any extra money into some high yield investment while they are not using it to keep for emergencies. However, I think that there comes a time where prepaying certain items makes sense. Insurance for example. If someone is on a monthly insurance plan and comes across more money than normal for a month, I think it is perfectly ok to use that money to “prepay” your insurance costs. While insurance is technically like an installment since you have a set amount that you are paying off for a specific period, it is still a monthly bill that can be prepaid without having to worry about getting a check back for the amount overpaid. I did this recently with my insurance and effectively saved myself from having to pay $250 a month for the next year. While this may seem ludicrous to some people, I don’t know what my financial situation or job situation will be like in the next year, so reducing the amount of monthly debts I have will allow me to use that extra $250 dollars for other debts that can’t be paid off as easily.
Justin: Prepaying your mortgage means that you pay the prinicple off faster than what was originally agreed to in your loan papers, which can save you bundles of money in interest you don’t have to pay. Depending on how much you prepay, you can cut the length of your mortgage in half or even less. So, yes, you continue to make your regular payment every month, but the end of your mortgage comes around much quicker. It’s not for everyone.
We pre-pay our mortgage and our gas bill. The gas compamy charges us $1 to use its online payment, so we make several months payment in advance and cut down on the number of times they ding us for the $1.
My lawn service company offers a 5% discount if we prepay for the entire year’s service in advance rather than paying for it on a visit by visit basis. Much more convenient for us anyway, so discount and peace of mind, here we come!
I love this way of “savings”. right when my wife and i got married, we started pre paying our Mortgage, and other misc monthly bills. we save $5.00 a month by paying our car insurance in 6 month lumps. At one point we were about 7 months ahead on our bills, and mortgage, and then we had my oldest son, matthew. he was born missing half of his heart and for the next 5 months i flew out of state to other hospitals to see him, and my wife.
if it wasn’t for having our mortgage paid in advance, there would of been no way i could of afforded to visit him durning surgeries.
it was like i didn’t even have to worry about bills! it was great!
at this point we still have a savings, a 401k, a year supply of food storage, and water, and now have our bills about 2 months paid in advance.
granted this idea of a “savings” isn’t for all, but if you look at the emergency aspect of it. if something comes up, like a sick child, a huricicane, or some other natural distaster, do you really think bill collectors care why you didnt have power to turn on the computer to pay your bill?
this way something happens, you know you dont have to worry about not being able to make a payment!
About a year and a half ago I started getting really sick of writing out a check or going online and paying off our utility and phone bills every month. At certain times of the year I get really busy and it makes it very difficult to keep up with all the bills coming in and whether or not I’ve paid them.
I started paying our bills in advance and now I just have to glance at the statements as they come in and file them away. It ended up saving me a ton of time, hassle, and postage. It also gives me peace of mind knowing that I don’t have to worry about it for a while.
Since I rent and have a contract that I signed for a year, I estimated about how much it would take to pay a bill in advance until a month before the lease is up. This way I don’t worry about having a big chunk of cash sitting at some company and them not knowing where to send it. It’s been nice. If I prepaid $1000/year on all of my bills and would only get 3% from my saving account, I think the $30 opportunity cost is worth the piece of mind and time that it saves me.
I think this is great idea if you use it properly and can help you deal with transitions in your budget easily.
I live in Arizona and the elctric bill is outrageous during the summer, but usually sub-$100 come fall. I’m paying just $10-15 over my bill for the winter months and come summer I will have a little bit of offset at the beginning of summer to adjust my budget.
My cable and phone bills I usually only pay a few dollars more, just in case I have an unexpected expense and have to put off that bill until my next paycheck. My thought was that if you always have a few extra dollars in there it give you a good cushion for late fees in case you have to postpone payment. I could also imagine that this comes in handy in case you ever get hit with “unexpected” charges or rate hikes.
I don’t do it in large amounts, but I think small amount might be a better, more affordable strategy.
We live in Las Vegas and our electric bills in the summer can be between $250 – $300 June-August, so every month we pay just a little extra to help with the next month! And the same as Robbie, in the winter they are less than $100 and that is exciting, but we still pay extra!
Another thing we’ve done is when cc bills come in I pay at least the minimum (unfortunately we are one of those sad families who carry balances on our cards) and then on the next pay day we make another payment, even if only $5 to help with the next month or even better to chop down the principal balance!
I do this too! I thought I was the only one. But I pay 1-2 mos in advance. If I forget,am out of town, have receivables but little cash in a certain month, no problem, the bill is covered. And no late fees or interest. This works for me.
I,ve done this for credit cards too. I “increase” my credit limit by paying more than the total balance. Some I’ve called about this and they don’t really like it. But it insures no interest or fees. If everyone did this the banks would make less $.
I prepay my bills 2-3 months ahead of time and I love it. I still check the accounts at the beginning and the middle of the month, and times in between where I’m making small, but steady, prepayments to the companies. For me this works, as I don’t make a lot and my pay varies from week to week, and makes rent a lot easier when I get a little extra money, or am going on vacation for a bit. I’d rather prepay than worry about the dollar amount (all of which I know because of a monthly email 10 days before a bill is due, also set up to text my phone). I never have to worry about being late, worrying if roommates are coming up with their money, and makes my rent “less” because I’ve prepaid a large chunk and I just collect a lump sum from them.
I’ve been on the CON side and had some late payments and don’t want that again, due to late payments from people I’ve lived with. It’s not fair, and it’s not right, but it happened and wasn’t my fault.
being the owner of a seasonal Jackson Hewitt Income Tax franchise I always do this. I pay off my home and car insurance, home alarm, cable/phone, property taxes, life insurance policy and water bill for the whole 12 months. It really feels great and gives me the chance to relax put any money I make in investments. I think J.D Roth got the idea, good job.
This is really good for people who want to leave their job or take a break to switch careers. I paid my bills ahead about 6 months before I became an entreprneur. It really helped because I wasn’t making enough to support myself while workin part-time.
Once I left my job, I wasn’t stressed because I had money in savings and almost no bills due. I had 6 months to generate income. Luckily, it only took 2 🙂 Having no bills made me feel like I was back in high school xD
I’m thinking about doing this to work the credit card bonus signups. Some of the spend requirements (say, $4k in 3 months) might be tricky for me to hit otherwise, but if I can pre-pay a few months’ worth of bills, maybe that would help
I do this as well, for our whole household. what I have found is that I am really able to make headway on savings and monthly extra money because I have essentially wiped out those monthly small rotating fees which allows me more to save, which allows me more to save toward PIF payments that further save me money. Its hard to get started but once you get going it is easy to maintain and allows for more leadway for emergencies.
Example, Geico is our insurance company, my 1 Pay option is 433$ for 6 months. If I dialed it all the way down through to the bottom Pay 6 option, it would increase my overall annual amount due by 400$. So I would be paying 1266$ year instead of 866$. So because I paid ahead on so many small bills, this gave way to me to be able to save the entire 6 mo premium so I could save and pay a 1 Pay Plan and keep 400$ year, which then goes toward some other thing I am paying ahead on.