Who knew that we could actually save money while paying our bills? That’s not all — our bill-paying habits can actually be costing us some extra bucks if we’re not careful. So depending on what kind of bill pay system we’re using (if we have one at all!), we could be inadvertently contributing a little to our bottom line or perhaps setting ourselves back financially without knowing it. How so? Here’s a run down of some tricks we can apply to make the bill paying process more efficient, as well as more profitable:
With These Tips, Save Money While Paying Your Bills
#1 Transfer credit card balances.
So you’re been on top of your payments and have tried to negotiate better rates with your credit card company and still, they’ve refused your request. Time for Plan B! You may want to consider transferring your balance to more favorable balance transfer credit cards. You may or may not have to pay a balance transfer fee in the process but you’ll offset the fees with the improved rates. But always read the fine print and beware of teaser rates, where you may be offered low or no interest rates for a short period of time only for these rates to jump back up to levels as high as 29%. And one more tip: every credit card application triggers a “pull” on your credit report, which, when done frequently, can invariably lead to lower credit scores.
#2 Pay on time!
There’s pretty much no excuse for paying bills late. Unfortunately, I’m guilty for missing payments in the past, or dropping the ball on them for a variety of reasons: misplaced bills, lack of organization, questions about the bill that hold up the payment, procrastination, and so forth. But there are some unsavory consequences to late bill payments, especially if you do this habitually: your credit history and credit score can be adversely affected, which could lead to unfavorable interest rates and additional fees on loans you take out. The difference between a good and a poor credit score can literally be many thousands of dollars, especially if the loans in consideration are for big ticket items such as mortgages or car loans. Apparently, even a single late payment can cause rate increases among your creditors across the board.
So what to do? The key is organization (which I need to be improve upon!). Review your mail immediately and file your bills away using a system that you can stick with. Pay bills on a regular schedule or as soon as you get them. For those bills that don’t need to be sent out right away, label them with the date you intend to mail them out. Say NO to late fees and higher interest charges!
#3 Pay your bills online.
Nowadays, banks have beefed up their online presence and have some great features you can utilize to make bill paying more effortless. If you have an account with a bank, check their web site and see if you can avail of their bill pay services for free or at low cost. Though it may take a bit of work to set up, the pay back is sweet with all your bills organized online and easily payable through a click of the Submit button. Similarly, you can set up online bill pay through other institutions, service providers and companies you do business with such as credit card companies, lenders, utility and telephone companies and so on.
What do you save? Time, and definitely some change that could definitely add up: you no longer need to purchase stamps, envelopes and checks as often. Other great benefits: other than saving time and money, you also save the environment (less paper), may find that online transactions are more convenient, available, accessible, and relatively more secure.
The only clincher is that you’ll need to make sure you set up your bill pay schedule correctly since it could take a bank a couple of business days to deliver your payment. Be careful that you don’t run into late payments this way.
#4 Pay your bills automatically.
For starters, you could set up automatic bill pay for your fixed expenses. With paying bills being such a chore, the more you automate, the less you have to worry about. You can set up payment dates and fixed amounts either through your bank or other financial institution, or through your specific service providers that accept payments in this fashion. Some great candidates for auto bill pay:
- your mortgage
- other debt payments
- subscription costs
- utility bills
Just to be sure my payments go through, I’ve opted for email notifications from my bank and lenders to get confirmation for my transactions. The only thing you’ll need to worry about now is that you have enough in your account to cover all these payments. For variable expenses, you may want more control over the payment process, so in that case, you can still pay your bills online, albeit manually.
#5 Sign up for eBills.
Though I haven’t had a chance to use this feature yet, another new online invention is the eBill. Many companies offer electronic bill presentment, or eBills, which are sent to you electronically (but of course) by your service provider or biller of services, directly or through your bank as part of their online bill pay service. You can then review your bills online and pay on the spot or at your convenience. This is definitely the environmentally friendly way to pay.
#6 Ask your lender for lower interest rates.
If your bills = debt, then you can save some money by finding out if you can reduce the interest you pay on your bills. If you’ve been a diligent customer or account holder for some time, have good credit, have made timely payments and have built a good relationship with your lender or creditor, you may want to negotiate better terms for your loans. You may be able to work something out especially with those credit card companies who are very likely to want to keep your business.
#7 Put your bills on credit.
This may not be the most popular way to pay bills but if done responsibly, it can pay off. Credit cards offer rewards programs from travel rewards to extra savings to points for merchandise and so on. If you’re able to pay off your credit card balances each month, then this may be a good strategy to get something back for the spending you already do. Be aware though, that some providers charge a small fee for credit card payments (around $3 a transaction).
#8 Prepay your bills?
The concept of prepaying your bills (or putting more per month towards your bill) may be a bit odd, especially since you’re basically letting go of money early when you could be earning interest on it. But if you’re talking about debt, prepaying can be an excellent way to cut down on the interest load you’d be paying otherwise. Your mortgage is one example of something that you may want to pay down faster. But what about other bills? Are there any benefits in prepaying them? Well for J.D. at Get Rich Slowly, there *are* some benefits to prepaying his monthly bills, although they may not be in the financial realm.
#9 Pay your bills more frequently or make extra payments.
Again, you can make quite a dent on your debt and you can end up building your equity faster by accelerating your bill payments towards certain loans. You may have received some offers in the mail from companies that purport to help you save thousands of dollars by way of bi-weekly mortgage payments (payments every two weeks). Well guess what — you don’t need these companies to tell you how to do it: they’ll just charge you extra for something you can handle yourself (plus some are actual scams). Here’s what you can do: if you pay your mortgage once a month, split the total monthly payment in half then pay that amount every two weeks. This payment schedule is equivalent to making an extra month’s payment after the year is up. You’ll find that you can actually shave off almost eight years off of your mortgage while saving 23% to 30% in interest, which this About.com article can attest to.
Oh yeah, you can actually apply this strategy on any loan that compounds more frequently than your payment schedule. Check out this description:
The best way to use this information is to understand how paying your bills more often can save you money. For example, if you have a credit card balance of $1,000, compounding daily means waiting a month cost you ($1,000 x interest) the first day, then [($1,000 + interest day 1) x interest] the second day. Doing something as simple as paying twice a month (half payments each time) could save you at least $100 in interest payments on this thousand dollar loan. People who get paid bi-weekly should pay half of their credit card bill with each check. This lowers the base on which interest can be charged.
Car loans, mortgages, and credit card loans are the major bills that can be cut down significantly by paying more often.
#10 Prioritize your bills.
If you have limited financial resources, it becomes essential to prioritize how you pay your bills. Not doing so may cause you to discover that while you paid for your credit card balance in full, you may actually be short on your monthly rent or mortgage. Here’s a good way to prioritize — you can order your payments as follows:
(1) Pay your living expenses first, such as your house or rental payments.
(2) Cover your medical bills, health care coverage, utilities, groceries and other necessities.
(3) Follow through with transportation bills and car payments.
(4) Tackle secured loans and co-signed debts later.
(5) Unsecured loans and credit cards should take lowest priority.
Hopefully, by prioritizing your bills, you’ll be able to breathe easier. Note that by looking at your expenses with a frugal eye, you’ll be able to pay more towards your bills — even those at the bottom of the hierarchy. One additional tip: develop a payment schedule that will help organize when you make these payments since payment due dates are not in this order.
#11 Pay bills with the highest interest rates first or apply the Debt Snowball strategy.
This would matter if you carry loans and debt. You’ve probably already heard about the Debt Snowball strategy which is widely talked about in the financial blogosphere. This strategy is alternatively called a push payment plan, which is meant to pay off the highest interest bills first. However, this scheme will take you potentially longer to clear any debt, thus delaying your gratification in seeing your debt melt away, but this happens to be the best and smartest financial approach to debt payment.
Note that the other way to pay interest bearing bills is to pay the smallest bills first, which may be much more emotionally gratifying and encouraging. You’ll be assured that your bills are cleared away faster this way, but it’ll cost you more in interest down the line. It’s a tradeoff.
A great site that covers paying down debt is “I’ve Paid For It Twice Already”, where you’ll find a lot of discussion on debt snowballs, snowflakes and everything else in between.
#12 Consolidate your bills and your debt.
You may find that you’d like to simplify your debt load by consolidating your bills and loans into a bill consolidation loan. The idea is for your bills to rollover into one loan. With only one loan to worry about sporting a more attractive interest rate, you’ll hopefully pay off your debt more quickly while simplifying your payments significantly.
More tricky, however, is the idea of consolidating your bills into a home equity loan or home equity line of credit (HELOC). People do this in order to secure the best loan terms available for their existing debt. Some benefits: lower interest rates, tax deductibility of the interest paid, great source of emergency funds. But beware the risks: you put your house on the line when dealing with these types of loans. If you are unable to make good on your bills, you may lose your house!
Check out these dueling posts on the pros and cons of using home equity loans to pay off your credit cards or other unsecured debt. J.D. from Get Rich Slowly says “Yes” to paying off credit cards with a home equity loan. While Jim from Blueprint For Financial Prosperity says “NO!”
With a few changes here and there you may find that bill paying is not as terrible a chore as it once was, and new habits formed may actually save you thousands of dollars. Better bill paying habits lead to better money management and ultimately fatter pockets.
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