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I am a full time working professional. I have the habit of paying my bills and loans a day before it's due. That way I've got more cash on hand.

However, I've also read that it is better to pay off debts first so that you know what's left, plan and save accordingly.

Is my current practice of paying bills and loans one day before it's due a good practice?

  • It is better to pay off your debts as early as possible.It is a good practice to get rid of your debts soon.It helps you in future. – Kimmy Burgess May 13 '14 at 5:00
  • If you have the money, why not pay it? Are you concerned you won't have money left over? – Brian May 28 '14 at 10:20
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Say you have a $2000 credit card bill due two weeks from today. If you are paid every other week, it's today's check that will pay it. Why not just get it off your desk? You can't spend it on anything else, so it's not really on hand as liquid cash to use. Much of my life, savings had a 5% rate of return. So, $100/yr or $2 per week on this money. If you have a bill pay that offers a same day direct payment, use it. But if you are mailing checks, the game of paying at the last moment will cost you with just one mistake.

I respect how that $2/wk adds up over a full budget, but rates are near zero, and the $10K in my checking returns pennies. I visit and set up my bill pay up each week and pay anything outstanding. Even if it's set for two weeks out, I enter it in the check register as gone.

  • 1
    If it is a debt, the interest you are paying is certainly higher than the interest you are earning. If this is just a cashflow question, use credit cards and pay them before the grace period for a free loan on any expenditures that allow it. – Nathan L Mar 7 '14 at 18:54
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    +1. I would say the risk of accidentally missing a payment and incurring associated late fees/interest/etc. far outweighs the benefits of waiting to pay -- because there aren't any benefits. As you say, keeping the money around is useless since you can't spend it anyway. If, on the day you were going to pay the bill, your car breaks down or your friends throw you a surprise party and you don't manage to make the payment, you just cost yourself money for no reason. – BrenBarn Mar 8 '14 at 2:00
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    I'm probably spoiled by a 21st century bank - how would a car breakdown or a surprise party affect me? When I get a bill, I can just tell my bank today to pay it when it's due. For instance, they'll pay my municipal taxes in two months time. – MSalters Mar 12 '14 at 11:20
3

I used an online bill payment system to schedule electronic payments for one day prior to the payment date. Normally, it worked great.

Then, I had a fraud alert on my checking account and it was suddenly closed, and the funds were moved to an alternate account. Unfortunately, the web-based bill payment system didn't sync up with that change. And my mortgage payment was scheduled for the next day. And it promptly bounced, causing my lender to asses a load of additional interest, fees, and penalties.

I now schedule my mortgage payments for at least a week in advance. ;-)

So my advice: if you're not having cash flow issues, and you're not worried about the small change the additional savings interest will provide, I'd say just go ahead and pay in full as soon as you get the bill. You might save yourself the headache of calling a lender and pleading for them to back out fees, etc.

When it comes down to it, my time is worth more than the money I'd save being pedantic about due dates. I value my time with my family more than the time I'd spend on the phone sorting out late fees. Your situation might be different, so that's your call.

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    Your bank should have made good on this. You properly set up a payment and they should have taken responsibility for it not getting sent. – JoeTaxpayer May 14 '14 at 1:59
  • @JoeTaxpayer good point; my concern was not really about the fees but rather the potential missed payment on my credit report, etc. So I took it up directly with the lender. It worked out; they gave me a break since I had a stable payment history, etc. – mpontillo May 14 '14 at 16:35
1

One of the biggest impacts to this plan is your marital status. If both of you work, there has to be a plan of action regarding when a bill is due and when someone is getting paid. It sounds to me like you're single since there was no mention of that kind of cooperation.

The problem with the way that you're doing it is when you have financial accounts which bill on certain days of the month, and as the years go on, the day before it is due may become the day it is due; therefore, you may forget that it is due entirely and have to rush a payment -- or heavens forbid, miss a payment in its entirety.

For me, personally, all of my accounts are electronic, and I like to log into them like once or twice a week and check on them. When I do think to check on an account, that is when I will go and plan, mentally, to make payments and submit them as I feel appropriate.

By the end of the billing cycle, just pay the measly amount and you're done.

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"One day before it is due" is not a good practice, because eventually something will go wrong, and for some reason a bill that should have been paid will not be paid in time, and then you are in trouble (or at least you incur unnecessary cost). You should always pay early enough so you can compensate for errors.

In the UK and possibly elsewhere this is really important for things that you bought with an "interest free loan", because usually these loans are not interest free if you miss any payment, and because of this the lender has a huge incentive that you trip up and miss a payment.

protected by Chris W. Rea Oct 11 '14 at 2:31

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