The Best Time to Pay Bills

calender bill reminder

We still pay most of our bills manually, by which I mean we don’t have automatic payments set up. While I recognize the advantages of automatic bill pay (no postage, time saved in writing out checks, etc.), I actually enjoy the task of paying bills the old-fashioned way. I like writing out checks and recording the bills by hand; it helps me better monitor our family’s spending.

I generally pay bills the day I receive them. Due dates seem to be getting closer and closer to the date of receipt, and I don’t want to risk having to pay a late fee because the post office was slow in delivering my checks. By paying bills as soon as I get them, I break one of the personal finance rules my parents taught me – wait as long as possible to pay bills so that you can collect the interest on the money.

Is it better to wait or pay bills immediately? The question is moot if you don’t have the money available, but when you have it, the risk of late fees has to be weighed against the potential loss of income. For payment on loans, of course, it’s usually best to pay right away because your debtors will be collecting less interest on your money, but what about when the cost is the same no matter when you pay?

This week, the question of when to pay came up when I got a property tax bill for $2,700, which was not due for two months. If I had that money in a savings account earning 0.25%, I would earn just over $1.00 in interest. While I have been known to take advantage of opportunities to save $1.00, I wouldn’t risk forgetting the bill and losing the early-payment discount rate for that amount. My money market account, however, pays somewhat better – over two months, I could earn about $10, an amount I consider worth waiting to pay a bill for.

Even more significantly, by paying the bill early, I would lose out on the opportunity to make even more on that $2,700 through investments. Last week, my husband made $100 on a similar amount of money through a short-term stock market trade. Our $2,700 could earn a lot in the stock market in two months, but we could also wind up with a loss if we have to sell a stock that’s down when the bill comes due.

We have already used this tax money to our advantage by getting it out of escrow several years ago. When we received a notice that our tax authority had no record of receiving a check from our escrow account, we called the mortgage company and discovered that our responsible payment record and level of equity had earned us the right to close the escrow account and pay our own taxes – not only is that money now ours to invest until the tax bill comes each year, but our mortgage is also $200 lower each month!

I probably should have held the tax bill for a while before paying it, but I didn’t. Yes, I lost some money, but I gained some psychological advantages – a sense that I had one less thing on my to-do list, and one less payment to consider when figuring out what money we will need available in the upcoming months. I paid the bill within a week of receiving it – but I dropped it off at the tax collector’s office, which I passed on my way to the doctor’s office, so that I could save $0.84 in stamps.

Image courtesy of Aunt Owwee

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18 Responses to The Best Time to Pay Bills

  1. Hilary says:

    I have thought a lot about this for the exact same reason – earning interest during the float. I totally understand the psychological relief of having the payment done. However, over the past 6 months or so, I’ve been “training” myself not to get stressed out about a payment being due by waiting until the last minute, no matter what. I even once paid my credit card early, but then cancelled the payment the next day because I was breaking my own rule.

    Yes, the money I make with this method is not that significant, but I figure that developing this skill of being able to pay at the last minute will add up in the long run, especially as my expenses get higher.

    Another trick I figured out is that if I’m really stressed about a credit card bill, I can make the minimum payment right away, and then pay off the rest of the balance at the last minute. That way, I have the peace of mind that I won’t be late on my credit report, and also earn interest on the majority of the balance. If you pay by mail, though, this probably isn’t worth it.

  2. ME2 says:

    I had a former co-worker tell me once that her sister and BIL had gotten in to paying their bills late, not unGodly late, but maybe a few days or so. It was largely due to the way they were payed.

    However, one of the creditors told them that if they were going to be late, it was better to be consistently late. Meaning don’t pay 3 days late, then 3 days early, then 4 days late and 2 days early.

  3. Interesting thoughts… personally I automate as much as I can, but set things up so the money stays in an interest bearing account for as long as possible. As for payment schedules getting messed up due to pay day changes goes, I think that’s the sign of living too close to paycheck to paycheck. If they kept a month of living expenses in a bank account they wouldn’t have missed any payments.

  4. Courtney says:

    If I may, consider automatic bill pay combined with online bills. It really does save time. I barely have to check the mailbox anymore. However, I do manually schedule my payments (as opposed to having them automatically deducted) and then write them in my calendar and checkbook, so it is almost as real as writing a check.

    I schedule all my bills to be paid exactly ONE business day before they are due. I started doing this because I used to double-pay bills accidentally – once right when I got the bill, and then panicked as the due date approached – “Did I pay this?” and ended up writing another check. That’s no good.

    Because I schedule my bills to be paid exactly one day before their due date, I can easily tell looking at a bill against my calendar whether it has already been paid (or has been scheduled to be paid). Because I know the post office is not entirely reliable, I don’t schedule payments exactly on the due date. However, I do get the best of both worlds in that I can put my money in a savings account until it is due.

  5. Chris says:

    I hate writing checks, so I do as much online bill pay as possible. I still like to control when my bills get paid, so I am not enrolled in any “automatic” payments. That scares me because I get paid every two weeks. I am never paid the same day each month.

  6. disneysteve says:

    You shouldn’t have your savings in an account paying only 0.25% and you shouldn’t be paying things manually anymore. Set up automatic payments and either the company can do an auto-withdrawal when the bill is due or you can schedule an auto-payment when the bill is due. That way, you can still “pay” the bill when you get it by scheduling the payment to actually be made at a later date.

  7. Shelly says:

    I break it down two ways

    Utilities– never pay early and ok to miss if no late fees apply.

    Mortgage- sign up for auto pay from day one.
    Taxes– escrow is usually the best policy. Never want to be caught late on this one due to high fees where I live for even one day late.

    Credit card– rarely use and if used make sure you setup the bill pay for at least 5 days before due date due to timing issues. The bank needs to physically cut a check to the creditor and mail it. If you sign up through your vendor, then the money comes out on the exact due date– like throught the Discover card website for example.

    Daycare lady– never pay late and try to pay a day early– it keeps her very happy.

  8. princessperky says:

    you know with some online accounts you can set it up to pay…at a later date.
    so you can have the relief of paying, without losing the interest.

    (though just simple interest, you still have to be sure the account has enough in it to pay)

  9. baselle says:

    I pay as I receive. My ability to sleep at night, my record of paying maybe a 3-4 late fees in 10 years, and my ability to show Cap One that due to my payment history your fee was wrong … that FAR out weighs any interest on the float that I’m going to earn.

  10. Destiny says:

    I do auto pay on everything except my rent.

  11. SaveForHouse says:

    I personally would not risk money in the stock market that you cannot afford to leave there for 5 years or more. Trying to make $100 here or there on a stock trade is risky if you’re going to need that money to pay your bills. What if you lose the money and then cannot pay your bills? Moreover, even though I have been investing in the stock market for over 10 years, I have never had any luck with my shorter term trades. My big wins have been on my DRIPs (dividend reinvestment plans) that I have held for 5+ years.

    One point I always worry about with my bills is ruining my credit with a late payment. I always try to pay as soon as I get my bills to make sure to keep my credit nice and high which will end up saving me money when I apply for a mortgage.

  12. TopWaysToSave says:

    I agree that you’re savings shouldn’t be only paying out .25 percent when so many online banks like ING pay out about 3 percent or more.

    I do agree with floating the payments though. I usually just have my credit cards paid online the day before they are do. I like keep the money earning interest for me as long as possible.

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  14. FrankW says:

    On the payment of property taxes now or later: this is a slightly more complicated case for me as the tax effect of paying it this tax year vs next tax yr makes a difference. This also applies to the old trick of making your January mortgage payment in December so you can claim the mortgage interest paid in your tax return. (All assuming that you’re not earning so much that you can’t qualify for any of these deductions). What do I do: use Quicken and create a calendar of all payments for the year so I can see what’s coming up and what my cashflow should look like.

  15. Dana says:

    I pay our mortgage two weeks early. I schedule it out of the 15th paycheck although it’s not due until the following month on the 1st. This has actually lowered our principal even more due to less interest by paying early. It’s not a lot but over several years, it can make a difference.

  16. SNAFU says:

    Please don’t be offended but your post seems Luddite-like to me. Your time is worth $$$. Enjoy the old system by noting all payments and their due dates in the register section of your chequebook but reduce bank charges by making the actual payments on-line releasing one business day before the due date for added security.
    Had you continued paying an extra $200. a month on your mortgage, that sum subtracts directly from the principal and knocks years off your mortgage. By multiplying your monthly mortgage payment by 360 you better understand the total cost of a mortgage over 30 yrs.

    Does your municipality have a monthly property tax payment system? Most municipalities require pay-out by June while the tax actually extends to December.

    Add mortgage savings, cost of postage, envelopes, your time, and potential for short-term investment profit to decide if it equals the good feeling you get from writing cheques.

    Anything you can do to make your money work harder is a good plan. We need to keep shoving down inflation and increasing profit potential.

  17. Osadg says:

    I know a lot of people have suggested going to complete online bill pay, but I’m somewhere inbetween that and what you do.

    I also enjoy sitting down to pay my bills, but instead of having to sit down and pay them all while writting out checks, and instead of just trusting to bill pay, I do a little bit of both. I actually sit down and pay online when I receive bills, or if it’s not due for a few weeks, I go ahead and set it up to pay online closer to the due date.

    This way, I still get to feel like I have all the control of maually paying my bills, and seeing the balances, but it doesn’t take me much time at all. And I never have to worry about anything being late, or about when to send the payment so I can earn more interest, it’s all still in my account, until the day I scheduled it for.

  18. abru says:

    time is money

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