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This chapter is from the book

The Right Ways to Pay Your Bills

The wrong way to pay bills is willy-nilly, using old-style paper checks and worrying about late fees. The right way includes the steps outlined in the following heads.

Know What You Owe

Take a few minutes to set down, in writing, every bill and obligation you have. Include crucial information like the name of the biller, your account number, the customer service phone number, the payment method you use (such as check, automatic debit, charge to your credit card, online bill pay, etc.), and the bill’s due date.

The template on page 8 can get you started. I’ve left room so that you can add other bills not listed here.

Having all this information in one place can help you in more than one way. It will serve as a checklist as you work through the rest of this chapter, reminding you of what accounts you have and when your bills are due.

But it can also provide crucial information to anyone who may need to take over the finances if you’re sick, disabled, or otherwise out of the picture.

In many households, one person does most of the bill paying, and the other family members have no idea what’s due when or even which institution to pay. You could avoid a lot of confusion by updating this list occasionally and keeping it in a safe place that’s accessible to your spouse, partner, or other trusted person. Just make sure this person knows where to find it.

If you pay your bills online, as I recommend, you’ll also want to make a list of all the relevant passwords and keep it in the same safe, accessible place. If someone needs to take over bill paying for you, he or she will need this information to access your accounts.

Set Up a Bill Calendar

You can use a physical, on-the-wall type calendar to write down all the due dates for all your bills. Or you can use personal finance software like Microsoft Money or Intuit’s Quicken; a personal digital assistant (PDA); a smart phone with a calendar feature; or a calendar in your computer. What matters is that you use something you’ll actually see at least once a week if not more often.

If you take my advice, you’ll be using a variety of other methods to make sure all your bills are getting paid on time. Paying bills on time is essential, since one late payment can devastate your credit scores.

Even with those other methods, your calendar is essential. It’s your safety net to ensure that none of your bills slips through the cracks. Whatever method you choose, it should be something you consult often and you should include every bill, including those that are due annually, twice a year, once a quarter, and every other month.

Bill

Institution

Account Number

Toll-free number

How Paid

Due date?

Mortgage/Rent

Home equity loan

Property tax

Water

Electric

Garbage

Heat

Other

TV

Phone 1

Phone 2

Phone 3

Phone 4

Internet

Homeowners Ins.

Umbrella Ins.

Auto Ins.

Health Ins.

Life Ins. 1

Life Ins. 2

Life Ins. 3

Disability

Other

Union dues

Tuition 1

Tuition 2

Student Loan 1

Student Loan 2

Student Loan 3

Credit Card 1

Credit Card 2

Credit Card 3

Auto Reg. 1

Auto Reg. 2

Gardener

Housekeeper

Babysitter

Set Up Alerts

I’m a big fan of automatic bill payments, as you’ll see later. But there are always some bills that require my attention. To make sure I don’t miss one, I’ve set up alerts on my personal finance software that let me know when various due dates are approaching. You also can set up alerts on your PDA or smart phone, or use an email reminder service (there are a bunch of them on the Web, or check with your Internet service provider) to let you know when bills are due.

Some alert systems go even further. My Discover card lets me know my monthly balance and due date via email; then it sends another email if a payment still hasn’t arrived within five days of the due date. Emails also alert me when payments are posted and when my balances reach certain levels. Similar services are available with my American Express card; in addition, the company emails me when “irregular or suspicious” charges show up on my account.

The way you remind yourself isn’t as important as making sure you actually do.

Consider Switching to E-Bills and E-Statements

If you really want to cut down on the paperwork cluttering your life, think about switching from paper to electronic bills and statements. You can have them sent to an email account you consult often, so you won’t miss anything.

You really don’t need the paper as long as you remember to download the statements or bills and back them up occasionally (and backing up your records is something you should be doing anyway). The IRS accepts electronic records, and financial institutions keep your statements on hand for at least six years anyway. (After that point, your chances of being audited are almost nil.)

Many people aren’t quite ready to go paperless, though, so I won’t insist. Just keep it in mind as an option.

Pay Your Bills Electronically

The check-in-the-mail route is too slow and too unsafe. Your payment is at the mercy of the U.S. Postal Service and the competence of the processor at the other end. If you tell the credit card company you mailed the payment in plenty of time, but the processor insists it didn’t arrive by 1 p.m. on the due date (remember, many credit cards have due times now as well as due dates), who do you think is going to win that argument?

Not to mention how vulnerable check payments are to any thief who’s figured out how to raid the mail in transit or at its destination.

And, make no mistake, a paper check is a thief’s best friend. Everything he needs to know to invade your account is printed right on the front: your name, address and account number, plus the bank’s routing number. A thief might treat the check chemically to alter the Pay To and Amount lines, or he might simply use the check as a template to create bogus ones and write himself a payday.

Contrast that with the typical electronic transaction. The money is transferred out of your account and into someone else’s, leaving a clear electronic trail behind. The transactions are encrypted, making them virtually impossible to intercept. And there’s usually no question about when a payment was received.

If the recipient is one of the dwindling few that doesn’t accept electronic payments, you’re still usually better off using an online bill payment system than writing the check yourself.

Here’s just one example. Back at the dawn of time, when I was still using lots of paper checks, I wrote and mailed one to a vendor that never made it to its destination. The response from my bank was a metaphoric shrug. The phone rep offered to put a stop on the check for $10 but warned me I’d have to remember to renew it in six months.

Fast forward. I use the same bank’s online bill payment system to pay a vendor who doesn’t accept electronic transfers, so the bank itself generates and mails the check. Said check never arrives. This time, the bank couldn’t have been more helpful. For one, it emailed to notify me that the check hadn’t been cashed in a reasonable amount of time. It automatically stopped the check, permanently, for free, and it cheerfully reissued a new one at my command.

I can’t guarantee that your bank will be as helpful. But most banks are eager to herd people into electronic payments because electronic transactions are generally cheaper to process than paper ones. That means most banks have a stake in making sure their customers’ experiences are good ones.

Your goal should be to minimize your use of paper checks, substitute electronic payments, and make your whole system as automatic as possible. You have several options, including these.

  • Online bill pay—Most banks have online bill payment systems, and they’re typically free (or free if you maintain a certain balance). You’ll usually find a link to your bank’s bill pay system on its home page. Once you sign up, you’ll be guided through the easy process of adding companies and individuals to the system so that you can pay them electronically. You can set up recurring payments so your regular expenses that are the same amount, such as your car payment, get sent every month without further action on your part. You also can pay bills manually, which means you specify the amount to be paid each time. Your online bill payment system will tell you how far in advance you need to initiate payments to ensure they reach the biller on time. Pay attention to those dates and consider adding a day or two to ensure every payment gets to its destination on time.

  • Automatic debits—Most lenders, utilities, and other regular billers offer the option of taking your payment automatically from your checking account every month. You still get the bill or statement in advance, but no further action is required on your part once you’ve signed up. Some billers, especially mortgage and student loan lenders, even give you a break on your interest rate for using direct debit. I also like automatic debits for credit cards; with it, you can ensure that the minimum payment, at least, always gets made on time, and then use your online bill pay system to pay off the rest of the bill. Finally, automatic payments can be a good solution when the amount of the bill varies month to month. If your natural gas bill varies from $15 a month to over $200, as ours does, automatic debit makes sure the bill gets covered no matter the amount it happens to be that month.

  • Automatic charges to your credit card—This is a good option only if you pay your credit card balances in full every month and if you make sure you don’t max out your card, or even come close. If you try it, though, you’ll probably love the convenience (and potential rewards) of charging bills to your credit cards. Instead of a dozen or more separate bills to pay, they all come on one statement; if your card offers frequent flyer miles, cash back, or other rewards, you can literally make money by paying your bills. Automatic charges can be another good way to pay a bill when the amount varies month to month.

You may wind up using a variety of these methods. You may decide, for example, to put your mortgage and student loans on auto debit to get an interest rate break. You can set your credit cards up for auto debit as well: You’ll have the choice among having just the minimum taken automatically, the full amount, or a dollar amount you specify. You might even mix it up: choosing full payment for the cards you use infrequently, which tend to have smaller balances, and just the minimum on a credit card where you still carry a balance. Recurring and manual payments using your online bill payment system can cover the rest.

Bill

Best Payment Method

Mortgage

Recurring bill payment (BP) or auto debit

Utilities

Auto debit or credit card

Phone

Auto debit or credit card

Internet

Recurring BP, auto debit, or credit card

Cable/satellite

Auto debit or credit card

Tuition

Recurring BP, auto debit, or credit card

Student loans

Recurring BP or auto debit

Credit cards

Pay minimum with auto debit; pay balance with online BP

Car loan

Recurring BP or auto debit

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