Step 6: Pay All Your Bills On Time

Well… that seems obvious.

I’ll agree that to pay bills on time isn’t the most revolutionary financial advice but it is very important. It is important beyond the obvious ‘stay out of debt and collections’ aspect of paying your bills. There are far-reaching effects of paying your bills late you will want to avoid where possible. I fully understand that sometimes people pay their bills late because they lack the funds to pay in full on time. This advice isn’t necessarily for that situation but rather for those forgetful among us who have trouble remembering to pay on time.

Pay all of your bills on time

Wait… I want to start at the beginning.
Link to the previous step – Step 5: Get a small emergency fund

If you currently pay all of your bills in full on time, you can probably skip ahead to the next step on the journey to financial independence. If you occasionally miss a few due dates or habitually pay late stick with me here and learn why that may not be in your best interest.

Still with me?

Now that you have built out a budget and paying at least the minimums on all of your loans, all other expenses, saved a small emergency fund, and have some room to spare it is time to set our bill paying on auto-pilot.  If you have any bills, even non-essential ones, previously on hold or in forbearance you need to start paying them in full on time each month.

Most people find paying bills a boring part of life and I can’t blame them. It will never be a sexy, high functioning personal finance maneuver going viral on social media. Yes, that sentence implies that I believe some aspects of personal finance are sexy and I stand by that. The point is that you can’t ignore your bills, no matter how mind numbing they might be. Pretending you don’t have money problems only extends your financial situation and creates significant stress in your life. Fellow bloggers, Partners In Fire wrote about How to stop ignoring your money problems and is a great primer on getting back on track.

Set phasers to auto-pay

The best way to do this is to make sure those amounts are included, in full, in your monthly budget you are still tracking your spending against each month.  Another good way is to sign up for auto-pay on at least all of the fixed cost monthly bills like rent, subscriptions, utilities, etc since these amounts won’t vary from month to month.  Auto-pay does two things for me: it makes sure that the full amount leaves my account each month so I don’t mistakenly think it is savings and it makes sure that I avoid any late fees paying after the due dates.

You are probably thinking to yourself right now that since I’m some sort of financial genius with a bajillion dollars that I’ve never had to deal with such pedestrian issues as paying my bills on time.  I wish that was the case but no amount of money (and I certainly don’t have unlimited amounts of it) prevents forgetting to pay a bill on time unfortunately and I’ve definitely forgotten in the past. We’ve all been there.

County water providers don’t play around

One memorable example was coming home from work one day to find out our water had been shut off by the county.  After contacting them and working through sending a payment immediately I discovered it all stemmed from just not realizing I forgot to set up the bill payment that month online.  It was so easy to just set that email with the bill aside to do later and have it buried in my inbox never to be seen again.  I signed up for the automatic bill pay from checking account the next month and should never miss another payment in theory.

Late fees are like $5 though…

Late fees may seem like such a minor thing in the long run but can easily add up over time.  A late fee is just wasted money where you get nothing in return.  In fact, it can negatively impact your relationship with the vendor or service provider.  A history of paying your bills on time (and in full) gives you leverage if you need some payment assistance or leniency in the future should an issue come up. 

If a company views you as a good customer and has good reason to believe that if they help you out now in some capacity you’ll return the favor by remaining a good customer for the long haul they are more inclined to help you out.  Additionally, a history of paying your bills on time in full might help you negotiate some bills down in price.  Your cable company might be more willing to give you the promotional price since they know, as a good paying customer, you have options to leave them for a competitor.

Beware the credit score boogeyman

Paying your bills partially or late can also negatively affect your credit score which has far reaching implications. Whether the credit score system makes sense in general or is fair is a whole other discussion worth having but just know that it is very important. Nerd Wallet goes into a lot of detail in this article regarding how late payments translate to credit score hits. It is worth reading.

Even at smaller scales it can affect whether or not you can get that apartment lease, get a car loan, or even get a job in certain sectors.  Those negative consequences don’t even take into account that you might end up paying a lot more than your peers for the same car or apartment because of a bad credit score.

TL;DR

Pay all of your bills on time and in full. Not doing so can hurt your credit score and leverage in negotiating changes. Try to eliminate some bills if possible.

Link to the next step – Employer 401k Match