Work, get paid, spend, repeat. It’s all too simple — and common — to blow money as soon as it hits your bank account. That’s why consumers spend $3 trillion per year on hidden costs associated with their bills. These costs include overdraft fees, late fees, and costly credit mistakes, which boil down to about $577 per year for the average American household. If you’re having trouble paying bills, there’s one thing that you can do to make your life a little easier: Try aligning your expenses with when your paychecks hit your checking account.
Why You Should Align Your Bills With Paydays
As exciting as it is to get paid, it’s equally as tempting. If you get paid monthly or bimonthly, you’ve likely watched the money drain from your bank account for several weeks, waiting for next month when payday will arrive. The influx of cash almost feels like a little encouragement to treat yourself, even if that means your bills have to take a back seat.
By aligning your bills with your payment schedule, you take a more proactive approach to money management. Once your paycheck hits your account, you can allocate the funds to the appropriate bills before you even feel tempted to spend the cash on something else.
This method is the best strategy to help you take control of your finances and get you one step closer to your financial goals. Lenders and billers typically don’t mind adjusting dates for borrowers or customers, as it better ensures that you will pay your bill on time rather than late or not at all.
How to Move Your Bill Due Dates
Not all creditors and billers allow borrowers or customers to customize when their monthly bills are due, but many do offer this service. Better yet, the process for adjusting your due dates is fairly simple. Typically, you can contact your creditors or billers directly and request that they adjust the date to better align with your schedule. You may also be able to adjust bill due dates online through your payment portal.
How you decide to organize your bill due dates is based on personal preference. You may want to move all of your due dates to one day, either at the beginning or end of each month. An alternate way to organize your due dates is to stagger them so that you pay half of your expenses earlier in the month and half closer to the end of the month.
Whether you dedicate one day per month to paying all of your bills or stagger your expenses throughout the month, reorganizing bill due dates has benefits. Setting specific payment dates, whenever they may be, gives you a more definitive view of your negative and positive cash flow throughout the month. It saves you time, reduces stress, and allows you to budget more accurately and easily.
Pros of having one bill-pay date
- Easier to manage time and energy with only one big bill-pay day per month
- Know that any money that enters your account after bill-pay date can be used for discretionary spending
Cons of having one bill-pay date
- Need more money in account on bill-pay date
- More money leaving your account at one time, less money until your next paycheck
Pros of staggering your bills
- Access to more discretionary spending each pay period
- Easier to make more than one payment on big ticket items to keep interest low and pay off debt quicker
Cons of staggering your bills
- More budgeting strategy needed
- Have to dedicate time and energy more than once per month to pay bills
Why Is It Important to Pay Your Bills on Time
There are a number of reasons why it is important to pay your expenses on time. First, recurring bills typically correspond with essential expenses, such as mortgage payments, rent, utility bills, your cell phone bill, credit card debt, student loans, and other loans. If you make one late payment, you can typically bounce back relatively quickly, but if you make multiple late payments, you may start to see more negative consequences.
For some expenses, such as utilities and gym memberships, your service may be suspended after several missed payments. Suspended services are an inconvenience. Often, you won’t know that your service has been suspended until it’s too late and the power has been shut off or an account has been shut down.
In these instances, it’s best to be open and honest with your creditors and billers if you’re having trouble paying your bills. Most billers are usually willing to work with you if you’re experiencing financial difficulties, either by waiving certain fees or services, or allowing you to postpone your payment until a later date.
Credit score damage
Billers, credit card companies, and other creditors, are able to report missed payments to the top credit reporting agencies: Equifax, Experian, and TransUnion. Information that is reported to the credit bureaus ends up on your credit file, which is then used by credit scoring agencies to generate your credit score.
Your payment history plays a significant role in your credit score. For the most commonly used credit scoring model, FICO Score, payment history makes up 35% of your score. Payment history indicates to lenders, credit card companies, and billers how reliable you’ve been with repaying debts and balances over the course of your credit history.
If your payment history causes your score to decrease, this will also impact your credit rating, as well as many of the opportunities that are available to you. For instance, a good score gives you access to better credit cards with lower fees, better interest rates and terms on loans, higher likelihood of loan approval, lower insurance premiums, and makes you a stronger candidate for rentals and jobs.
8 Other Ways to Pay Your Bills On Time
By aligning your monthly bills with your paychecks, you’re setting yourself up for success with bill payment. However, there are a number of other things that you should do to ensure that you get your bills paid in full and on time.
Map out your cash flow
Cash flow is the total amount of money going into and out of your accounts. Money heading in, or positive cash flow, generally includes paychecks or any other kinds of payments from companies or individuals. Money heading out, or negative cash flow, generally goes toward bills and any other discretionary spending.
Understanding your cash flow gives you a better sense of control and empowerment over your finances. It also makes bill pay a lot easier, as you’ll know the approximate time each month when you can afford to pay essential expenses, as well as when you should rein in your spending.
Stick to a budget
Once you’ve mapped out your cash flow, you’re in a good position to build or refine your monthly budget. Essential, recurring bills will only get paid as long as there’s money in your account to pay them. One way to ensure that there is money in your account when the time comes to pay your expenses is to create a budget and stick to it.
A budget looks different for everyone, as everyone’s finances are different. Whether you opt for the 50/30/20 budget, envelope system, pay yourself first budget, or zero-sum budgeting, it’s important that you find a budgeting technique that works for you.
Contact your lender or biller
Be open with loan servicers and billers if you’re experiencing financial hardship and unable to make a payment on time. Most providers are willing to work with you as long as you communicate with them. For example, you may be able to defer your student loans for a certain period of time, adjust your payment plan temporarily, or figure out other payment options to get back on track. You may even be able to negotiate your costs on certain bills if you need personal finance assistance during a difficult time. Communication is key in these instances.
Open a bill-paying account
Sometimes, separating your essential-bill money from your free-to-spend cash can be an easy way to make sure that you stay on track. If the money that needs to go toward bills like rent, mortgage, utilities, internet, cable, and loans is allocated to its own checking account that is only used to pay bills, you will not feel tempted to spend it. Then you can have another checking account for spending money on gas, groceries, and other day-to-day purchases.
If you’re going to separate your bank accounts, try opening one with minimal fees. You likely don’t want to pay your bank another monthly service fee. You’ll also need to keep a close eye on your new account’s balance and charges. Opening a specific bill-paying account only works if there’s money in the account to pay the bills.
Pay your bills early
To ensure that your bills are paid on time and in full, try paying them as soon as the statement hits your mailbox. The more time that passes, the more likely that you will forget to pay it by the due date or spend the money that should be going toward the bill.
You should still keep your statement cycle in mind if you choose to pay your expenses early. Creditors and billers set due dates for a reason. If you make a payment before the statement cycle has officially ended and charge more to your credit card, your upcoming credit card statement will still have a balance on it and you will have to pay it by the due date, even if you paid off your balance before the bill arrived. You could land a late fee, a bad mark on your credit report, or potential damage to your credit score if you miss a payment.
Make partial payments
For loan-based bills, such as credit cards and mortgages, you can make partial payments several times each month. This can be a good strategy to pay down your debts. First, making partial payments on a loan throughout the month can help you keep the interest down. By paying a smaller amount more than once a month, you can reduce the amount of interest that accrues on your total balance.
Partial payments also help you pay off your debt faster. Interest is not accruing as quickly, so you can cut down the total amount of time that you will be paying off your debt.
Like early payments, it’s important to still make all necessary payments by their due dates, even if you’re making partial payments earlier than you need to. You don’t want to miss payments and run into late fees or credit damage.
Use your "extra" check wisely
For people who get paid every other week, there are typically two months per year in which you’ll receive an extra pay check because of how the days fall on the calendar. (In 2021, there are three months with three pay periods.) Rather than looking at these as “extra” paychecks that can go toward whatever you’re wanting that month, use them to your advantage. Try to make progress toward your financial goals, whether that means putting the paycheck into savings or making an extra payment to reduce your credit card debt or other debts.
Build your emergency fund
When you’re spending money on bills each month, saving money likely doesn’t feel like a top priority. However, it is crucial that you save money — even if it’s only a small amount each month. Having a nest egg can ensure that you have enough cash to cover your bills and other essential costs in the event of an emergency.
Experts suggest that you build your emergency savings fund to cover expenses for three months in case you lose your job or have a medical or family emergency.
Remember: You should have a savings account dedicated specifically for emergencies. For instance, if you want to buy a new phone or take a vacation, you should not be pulling from your emergency savings account.