Posts Tagged ‘Credit Card Debt’

Credit Calamities: Keeping It Under Control

The average American has eight general purpose credit cards. This does not include gas station or department store credit cards. Add on top of these the basic monthly bills most of us pay, like the mortgage or rent, electricity and/or gas, city utilities, medical bills, and loans, to name a few. We spend so much of our month juggling which payment is due next; if we drop the ball and miss a payment, we can incur late fees and risk interest rates on all our accounts going up, not just the account we paid late.

Last month, we looked at ways to save money on our credit cards by negotiating for lower interest rates, exploring balance transfer rates on our existing cards, and researching options for new lines of credit at better rates. This month, we will look at strategies to simplify our payments to all the people we owe. 

Chart What You Owe.  This month’s suggestions starts just like last month’s: make a list of everyone you owe, how much you owe each month and when the payment is due.  Then take your chart a step farther. If you get paid twice a month, list which bills you will pay from the first paycheck each month and which you will pay from the second. Include on your chart contact numbers for each person or company you owe for easy reference. 

Pay on-time, every time, with “auto pay.”  Have you ever forgotten to mail your credit card payment or mailed it a few days late? Then you know what happens next. You get letters and phone calls from the credit card company, asking where their money is, and you incur expensive late fees and pay additional interest. And, late payments can trigger credit card companies’ computers to review your account for a possible interest rate increase. Paying late with one credit card company can even result in increased interest rates with your other credit card companies, even if you pay them on-time. Credit card companies make huge profits off of late fees; stop padding their profits by signing up for “auto pay.”

  • “Auto pay” is a free service that all major credit card companies offer, but you must request it. When you sign-up for it, you give the credit card company permission to draft your bank account for the amount you specify each month. You may choose to authorize them to draft the minimum payment, the full balance, or the minimum amount plus a specified amount.
  • Once you enroll in “auto pay,” you will still receive a monthly statement from the credit card company showing what you owe, but there will be an added line stating that the payment you requested when enrolling will be automatically drafted from your bank account on the agreed upon date.
  • Each credit card company has a different process for enrolling in “auto pay.” Some allow cardholders to sign-up by telephone; some require enrollment by filling out forms and returning them by mail; some allow cardholders to enroll online. Call each of your credit card companies directly to find out how to sign-up.
  • If you have several different credit card accounts with the same company, you must enroll each individual credit card account separately for “auto pay.”
  • Do not assume “auto pay” has started until you see written confirmation. The credit card company should mail you a letter stating exactly when your “auto pay” will start, which bank account will be drafted each month, on what date, and for what amount. Continue to make your monthly payments until you see in writing that “auto pay” is ready to start.  Save the written confirmation you receive with your account statements so you may refer to it as needed in the future.
  • All you have to do after you enroll is make sure that the amount the credit card company will draft from your bank account is actually in your account on the draft date each month.
  • Keep in mind that “auto pay” is different than making a payment online or paying via online banking köpa viagra online. With “auto pay,” once you enroll, no action is required on your behalf each month to make your payment, other than keeping funds in your bank account; the credit card company is responsible for drafting your account. When you make a payment online or pay via online banking, the payment does not draft each month until you take action to authorize it each time.
  • Make sure you understand during enrollment how to cancel or change your payment amount with the “auto pay” program. Some companies accept a verbal change or cancellation, while some require it in writing. Be sure you understand in advance how to make changes or cancel your enrollment before you start. 

Automate the rest of your payments. The days of writing a check and driving a few blocks to make your utility payment in person are long gone for most people. For most people, the payments you make each month are mailed out-of-town and out-of-state. So stop relying on your memory and the efficiency of the United States Postal Service to pay your bills on-time. Automate them with these services:

Online bill pay. Most major banks allow you to pay your bills online. If your bank does not offer this service, or charges a fee for it, consider moving your checking account elsewhere.

  •          Once you have a bank that offers free online bill pay, you simply enter each of the people or businesses you pay as a “Payee.” You will need their payment address and telephone, your account number, and information on how much you want to pay each month. With online bill pay, you must log-in to your online account each month and instruct the bank which “Payees” to send money to and how much on which dates.
  •          Some online bill pay services allow you to set-up recurring payments if the amount does not change. For example, if you owe $150 on a student loan each month, or if you have agreed to send your dentist $25 each month to pay off a procedure, you may be able to instruct your bank via online permissions to automatically send these payments from your checking account each month.
  •          Some more sophisticated online bill pay services even allow you to specify for how many months to send the payment. If you owe your dentist $130, you could authorize your online bill pay service to send $25 per month for four months and then $30 in the fifth month to pay off the debt.

Auto pay for other bills, too.  We discussed at length using “auto pay” for your credit cards; other companies may allow you the same option. Most mortgage and utility companies have free programs that will automatically draft your payment each month directly from your checking account. Some prefer this to online bill pay; the choice is yours.

Keep in mind that the most important step to paying your bills on time is to have a master list of what you owe each month. You may be coasting along just fine paying your bills from memory each week.  It only takes one life-altering event, such as a serious illness or a death in the family, to take your focus off of your financial routine, which can result in costly late fees and increased interest rates.

So commit today to creating a chart that lists all of your monthly obligations and debts. Then decide what options for automating your payments work best for you: logging onto online bill pay periodically to authorize your bank to draft your checking account to pay each bill, authorizing your credit card companies and other service provides to automatically draft your checking account each month with “auto pay” or a combination of the two. But stop sending checks that can get lost or delayed in the mail.  You will save time and money (think how many fewer trips you will make to the post office to buy stamps) and will avoid late payments. In the long run, you will probably see a positive effect on your credit score.