Paying bills is a hassle, but it’s a necessary part of life. You may think there’s no “right” time to pay as long as you meet the due date, but think again. Tackling bills early can yield significant benefits to your bank account and credit score. By honing your payment strategy, you’ll:
- Save money on interest. Scenario: You have $5,400 in private student loans. The interest rate is 7.8 percent and accrues at a daily rate of $1.15. Your bill is due on the 15th, but you pay on the 1st, saving yourself $16.10. By the end of the year, you’ve saved nearly $200 in interest charges. Apply this logic to every interest-burdened account. Consult your contract to calculate daily accruals. With the right strategy, paying early could save you thousands each year.
- Avoid late fees and penalties. If you’re guilty of the occasional late payment, you’ve probably paid a few fees and penalties. In addition to hurting your bank account, these consequences can cause long-term damage to your creditworthiness. Although one citation won’t cause major damage, two or three could lower your score and close the door to new opportunities. The solution is simple: If you have the cash, pay your bills early. Don’t waste time and money on bad behavior.
- Reduce stress. A simple but significant benefit of early payment is stress reduction. Whether you’re forgetful or just busy, sticking to a schedule allows you peace of mind each month. Why burden yourself with unnecessary problems? Consult your budget and post reminders in your phone, email or at-home calendar. Establishing positive habits is sure to help your stress levels.
- Qualify for discounts. While it’s not guaranteed, many utility companies offer discounts to customers who pay their bills 10+ days before they’re due. Contact your electric, gas water, sewer and trash providers to gather info on their policies. Why miss an opportunity to save money?
- Encourage credit health. Payment history accounts for 35 percent of your credit score. Paying bills early means establishing a long and healthy history. It also means an instant reduction in your credit utilization ratio, or the amount you owe versus your total credit limit. This factor accounts for 30 percent of your credit score. In total, paying your bills early could have a positive effect on 65 percent of credit score. With math like this, you can’t afford to wait. Make the right choice.