Once your financial situation is spiraling out of control with credit card debt, student loans, and car loans it can extremely difficult to recover. You’ve got payment due dates coming at you constantly and finding the cash to make those payments is hard.
An easy way to combat the problem of juggling your overwhelming bill due dates is to set a simple bill automation system. With automatic bill pay you can avoid having to remember to write a check for a bill because the amount is automatically taken out of your account. No more writing checks, no more envelopes, and no more stamps. Plus you get the peace of mind knowing your the bill was paid on time.
The Financial Cost of Late or Missed Bill Payments
You know having late or missed payments is bad, but do you know how bad? Here are four different financial impacts of missing a payment or submitting payment beyond the due date.
Obviously the first thing that will hit you is a late fee. The amount of the late fee will dependent on who you didn’t pay on time: credit card company late fees usually range from $25 to $35 to start. Your utility company might be a little bit more understanding and only hit you with 10% of the unpaid balance. Most utility companies will show you directly on your bill what the cost of late payment will be. Credit card companies usually hide that information within their membership agreements that you received when you first signed up. Mortgage and car loans normally have the late payment fee listed on each statement generated for you.
Interest Rate Increase
For most loan products, your first late payment will result in a greatly increased interest rate. If your normal credit card interest rate was 13.99% you’ll discover it has jumped to 20% or more (sometimes as high as 29.99%!). So not only do you owe your original balance and a late fee, but your cost of maintaining that balance is now significantly higher.
The next impact will be interest charges that accrue on your unpaid balance. The exact method of accruing interest will depend on the service you are late paying on, but most companies will generally start accruing interest once you are late. By not paying for services rendered the company is essentially paying them for you – which means they are loaning you money. Since loaning money to customers – especially those that don’t pay – is expensive, you get a bill with interest on it.
Credit Score Hit
Lastly, to top everything off, your credit report will soon show a missed payment mark. There are varying levels of these marks and the impact on your credit score:
- 30 days late: your credit score will take a hit, but you can recover
- 60 days late: your credit score will once again take a hit as you fall further behind, but you can recover
- 90 days late: your credit score will be damaged for 7 years as future credit considerations will notice you were once 3 months behind on a payment; you are now a credit risk
- 120+ days late: there isn’t an additional credit score hit here, but by now your debt has been written off as bad debt by the accounts receivable department at the company and likely sold off to a collections company for pennies on the dollar
Two Methods of Automatic Bill Payment
As you can tell there are a lot of bad things that happen with late and missed payments so it is important to take steps to avoid them. There are a couple of ways to set up automatic bill payment to help you avoid these problems.
Direct Automatic Bill Payment with Each Company
In my opinion the best and easiest method of automatic bill payment is to set up the payments with each service provider individually. This can take a little bit longer and requires you to give your bank or credit card information directly to a 3rd party (the service provider), but I prefer it. Why? Because if anything goes wrong with the bill payment system it is on their shoulders and not on yours. You hand over the information, agree to have the bill paid on the due date, and everything runs automatically.
If you are strapped financially I wouldn’t recommend putting everything onto a credit card. However, if you have your finances in order then putting all of your bills onto a credit card will make tracking your bills and juggling their payments a lot easier. Instead of getting a separate bill from your electric company, water company, cable and internet company, and so on you get one larger payment to the credit card company. The key here is to not carry those costs into the next month with missed payments because you’ll end up paying interest.
This method also can assist individuals where money is just a little tight because you don’t want to have your bills autodrafted from a bank account with a low balance and be hit with overdraft fees. Either way you have to pay the bill at the end of the month.
Bill Payment Through Your Bank
Alternatively, you can use your bank’s bill payment system to pay your bills. This can be beneficial to individuals with low balances because instead of the service company trying to withdraw funds on your account when your balance is low, you get to choose when the bill is paid. You get to log in, enter in the bill information with the amount to be paid, and the date that payment will be sent out. If you’re trying to juggle your low balances this can be useful in timing when you get paid with when your bills are due.
There is one problem with this method: it isn’t truly automatic payments. You still have to manage the process of juggling your bills and telling your bank when to send payment off. This is only a small step above sending in payments with checks through the mail. If you forget to pay the bill by the due date, you’ll get hit with the same fees that you would with a paper check.