Paying bills on time saves money and helps build credit: Part 1
There are numerous ways to pay bills. Know your options and the pros and cons of each.
Paying bills late, costs you money! In addition to late fees, credit card companies can also increase your interest rate which can be pretty painful, especially if you are carrying a large balance on your account. In addition, many consumers do not realize that 30 percent of their credit score is comprised of “past history”, or how we pay our bills. To make paying bills on time easier, know all of your options.
Per the Consumer Financial Protection Bureau (CFPB), there are a variety of bill payment methods available. However, it is important to review the pros and cons of each so you can choose the method that works best for you. Consider the following:
1. Paying by check: Allows you to pay bills from a checking account which are offered by banks or credit unions.
- Pros: convenient, checks can be mailed, and you have protection if your checks are lost or stolen.
- Cons: if you overdraft your account (i.e. spend more than what is available) you may receive fees from your financial institution and the company the check was sent to, checks must be mailed in advance so your creditor receives them on time, and you will need to purchase postage for mailing payments.
(Tip: To avoid costly overdraft fees, use a checkbook register to record checks and debit card purchases, and compare this to your checking account statement monthly).
2. Paying with cash: Using money that you have on hand, to pay bills.
- Pros: May avoid fees if paying amount in full, not incurring or adding to existing debt, and no risk of overdraft fees.
- Cons: Not all companies accept cash for payment, paying bills in person can be costly or inconvenient, proof of payment may be more difficult to prove without a receipt and large sums of cash may be difficult to replace in the event of theft or loss.
The next article in this series will review these additional payment options: utilizing online bill payment, automatic or direct debit; and paying by credit card.
Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, please visit either the MSU Extension events page or MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health.