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.

Earlier this year, on a whim, I did something a little odd: instead of just paying my monthly cable and internet bills, I wrote large checks, pre-paying for several months of service. I didn't have a reason for doing it at the time. I had a momentary surplus of cash, and it seemed like a good way to use it. Maybe I ought to have tucked it into a high-yield savings account, but it seemed just as good to me to pay five or six months ahead on these bills.

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.)

More about...Planning, Psychology

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)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
73 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Bob
Bob
12 years ago

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… Read more »

SingleGuyMoney
SingleGuyMoney
12 years ago

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.

Katie
Katie
12 years ago

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.

Kenya
Kenya
12 years ago

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… Read more »

Amanda
Amanda
12 years ago

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.

MS
MS
12 years ago

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… Read more »

Joe
Joe
12 years ago

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… Read more »

Heather
Heather
12 years ago

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… Read more »

Anne
Anne
12 years ago

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…

Justin
Justin
12 years ago

@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.

J.D.
J.D.
12 years ago

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… Read more »

Robin
Robin
5 years ago
Reply to  J.D.

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!!

Tim in Augusta
Tim in Augusta
12 years ago

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… Read more »

acwang
acwang
12 years ago

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… Read more »

Tim in Augusta
Tim in Augusta
12 years ago

@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.

rstlne
rstlne
12 years ago

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.

allen
allen
12 years ago

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.… Read more »

Justin
Justin
12 years ago

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.

zack
zack
12 years ago

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.

Samrobb
Samrobb
12 years ago

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… Read more »

Justin
Justin
12 years ago

@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.

Chuck
Chuck
12 years ago

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 🙂 )

kick_push
kick_push
12 years ago

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

Darren Meyer
Darren Meyer
12 years ago

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,… Read more »

kick_push
kick_push
12 years ago

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!

Sam
Sam
12 years ago

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… Read more »

J.D.
J.D.
12 years ago

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… Read more »

Daniel
Daniel
12 years ago

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.

Janeth
Janeth
12 years ago

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.

Pippin
Pippin
12 years ago

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… Read more »

giania
giania
12 years ago

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… Read more »

Jordan
Jordan
12 years ago

@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.

SR
SR
12 years ago

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… Read more »

Free From Broke
Free From Broke
12 years ago

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… Read more »

Velvet Jones
Velvet Jones
12 years ago

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… Read more »

John
John
12 years ago

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… Read more »

Jennifer
Jennifer
12 years ago

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.

deRuiter
deRuiter
12 years ago

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!

Charlie Park
Charlie Park
12 years ago

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… Read more »

Leslie
Leslie
12 years ago

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.

zack
zack
12 years ago

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.

Richard
Richard
12 years ago

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.

Dave
Dave
12 years ago

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.

Swamproot
Swamproot
12 years ago

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… Read more »

Leslie
Leslie
12 years ago

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… Read more »

Sandy
Sandy
12 years ago

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!

Nathan
Nathan
12 years ago

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.… Read more »

Mike Huang
Mike Huang
12 years ago

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

Kjell
Kjell
12 years ago

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.

Jimmy
Jimmy
12 years ago

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… Read more »

Louise
Louise
12 years ago

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!)

shares