How You Pay May Cost You Money
For a long time, I didn’t give much thought to the frequency or method of my paying for things. As long as it was paid, I was fine with it. Because we didn’t budget and we lived in extreme paycheck to paycheck mode, I never once gave thought to paying for something annually instead of monthly if I had the option. Monthly was my friend, and monthly was the way to go.
But by and large, paying for things monthly was costing me money. Not just the obvious things like credit cards or other loans that charge interest, but other things I never gave any thought to, especially insurance. When I started to really examine our spending and take a look at where we could cut back, it became glaringly obvious. Paying a fee every month for the convenience of paying monthly? That was costing me money I couldn’t afford to spend. The fees seem rather innocuous by themselves, but add up a $3 fee here and a $3.50 fee there every month and it starts amounting to a significant amount.
I couldn’t immediately switch to paying annually for everything. Without any money saved up, coming up with 6 months or a year’s worth of payments at once wasn’t an option. But little by little, I’ve been converting those monthly insurance payments to options that don’t cost anything in extra fees. First was the life insurance, which I have already started paying annually. Next is our car insurance, which I can pay semi-annually for no fee, so I will be making our payment for 6 months in October. Last but not least is our newly-acquired disability insurance, which I signed up for a monthly payment plan because I couldn’t pay ~$750 right now to pay for a year’s payment. But my goal is that by the time we are out of non-mortgage debt, to be on an annual payment plan with that payment as well.
But monthly payments vs annual wasn’t the only thing that was costing me money we can’t afford to waste. I also, in the past, would pay my bills in the way most convenient for me, which often was on the phone. Most every company I deal with charges a convenience fee for phone payments. If I pay 4 bills a month by phone, and pay an average of $2 in fees per payment, that really adds up! Don’t pay convenience fees! With a little investigation, a method can be found that is convenient for you and also free. For me, by and large, that is online banking.
Be aware of how the choices you make about bill payment methods, be it timing or execution, affect those payments. Don’t increase your bills by paying fees if you can find a better solution. It’s your money, after all.
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August 26th, 2008 at 11:31 am
Hmmm… I didn’t even realize I might be paying a convenience fee for paying my insurance premiums monthly. I should really check into that - thanks for the suggestion!
August 26th, 2008 at 12:13 pm
Yeah I noticed that when I was with AAA for auto insurance, and immediately said “No” to it. I now have 1/6 premium saved up each month, so when my insurance renews every 6 months, I pay with my credit card (can’t let the few dollars worth of cash rewards slip) then pay it off right away with the savings.
August 26th, 2008 at 3:03 pm
I normally pay annually - whenever I can afford it. For health insurance especially there are substantial savings.
August 26th, 2008 at 3:52 pm
I’ve been paying my car insurance monthly for a while now, even knowing of the convenience fee I’m being charged. I really need to get switched to pay semi-annually and avoid that ridiculous fee!
August 26th, 2008 at 3:54 pm
I didn’t realize this until I married my wife who paid her insurance premiums every 6 months. When I asked her why she did she told me, “To save money, silly.” It is definitely the way to go if you can afford it and have done your research to find that you have the best rate for right now.
August 26th, 2008 at 3:56 pm
I try to stagger mine so they aren’t all due in the same month - so think about that when you are ready to switch from monthly to semi-annual or yearly payments.
Car insurance, house insurance, life insurance, disability insurance, health insurance, property taxes, etc. These are all things that can be paid semi-annually or annually. I would prefer to pay the car, house, and life insurance annually, but that isn’t an option with the companies I deal with, so I had to settle for semi-annually. In some cases, such as my car insurance, by paying semi-annually, they credit me a discount of almost one month’s premium just for my upfront premium… so that one is actually worth about $65 twice a year savings for me to pay it semi-annually.
August 26th, 2008 at 6:50 pm
My insurance (my main semi-annual expense) always coinciding with my 3-paycheck month, so I never saved for it and paid it semi-annually (I couldn’t stomach the idea of paying a fee for the privilege of paying for my insurance!). Last year, when I got interested in personal finance, I started saving the amount monthly in an ING account, and now when insurance is due, I transfer it to checking, and as soon as it comes through, I can write a check. I don’t have to do any extra balancing, or wait for that elusive third paycheck. It’s so nice!
August 26th, 2008 at 7:50 pm
Online billpaying is the best invention since the internet. I was really hesitant to get onboard when the banks first started offering it, especially when they used to charge a monthly fee for access in the very beginning.
But after having a baby in 2004, it was a lot easier to forget about the duedates for various bills and I found myself scrambling more than once to get one in on time. I may have even paid a late fee or two, although my credit card companies waived them for me at least once because of my many years of good payment records.
So I decided to try the online bill paying with just a few bills at first. And then more. And now I do ALL my billpaying online. The convenience is just so awesome. I was always one of those people who waited to pay bills until the week before the due date (why give them money before you have to?). But now I just go ahead and enter the bills in billpay within a day or so of receiving them, and the bank computer gets to remember to get them out on time instead of me! I love it. And I save money on stamps too, which is great.
August 27th, 2008 at 10:02 am
Our auto and homeowners’ insurance company (American Family) does not charge a fee for monthly payments as long as they’re paid online. I’m glad, because although I could save 1/12 or 1/6 of a payment each month, I think it’s much simpler to go ahead and make the monthly payment.
August 27th, 2008 at 5:03 pm
The main difference between monthly and annual fees is having the money to pay for a full year up front. I’m not currently in a position to prepay my car or house insurance for a full year so the convenience fee is something that I need to deal with. Good post I think a lot of people don’t even notice the fact that there is a convenience fee for some monthly payments.
August 27th, 2008 at 6:21 pm
My insurance company offered to charge monthly a few years ago (no charges) so I took that option. then they announced they would charge a few bucks for the “privilege” I immediately switched back. Such fees are a a lousy way to spend my money.