Wednesday, July 21, 2010

A Simple Guide - How to Pay your Bills

The Expense Account

I want to share some ideas for paying bills. This will be quick and easy and (almost) painless. I will start with regular expenses, then move on to delinquent accounts. This is a basic guide for regular payments. This is not about getting out of debt. However, I will also share with you how to handle creditors when you are in a financial crisis.

1. The Checking Account - I will share the basics and then tell you why I dislike checking accounts.

If you have a checkbook in your hand, it is far too easy to spend money on impulse. These are often small amounts of money, but it will add up far too quickly. You might think, "Well, those snacks are only $6.00. I'll write a check." or "I am going to buy that bedding set, it is on sale."

What about special offers which come in the mail? A magazine Subscription? Write that check for $14.00. Or a new book? Write another check for $12.50.  It doesn't really seem like money when you write those checks. It is not painful enough. It is too easy and then you are broke! (*I will explain an option for paying bills without writing checks in a moment.*)

If you have cash in your hand, and a specific budget in mind, you are less likely to overspend.

To keep your checkbook balanced - 

It is important to write down every single transaction in the checkbook register. You will need to record deposits, withdrawals and checks you write. You will also need to keep this register balanced. You should always know exactly how much money is in your account, by looking in your register...

Do I have to say this?.... Calling the bank to get a balance will not be accurate! . . All transactions do not go through your account immediately. Some checks will not clear for a few days. It is your responsibility to do the math every single time you use your checking account in order to know the exact balance.

If you fail to do this - you may be charged overdraft fees as much as $30 each. You may also be charged $3 a day for every single day your account is overdrawn. This can add up to an enormous amount of money.

To avoid this - keep detailed and accurate records. You must also balance your account by using the worksheet on the back of your monthly bank statement. If your account does not balance, double check your math and find the mistake!  You must balance your account every single month in order to avoid costly fees. 

If you have a debit / ATM card, some banks charge you a $1.00 - $2.00 fee just for doing a balance inquiry!! Take a look at your monthly statement to see if this is happening to you!

If you enjoy bookkeeping and math - you will not have a problem. If, however, you want to simplify your life, I have another idea:

The Money Order -

Some banks allow you one free money order each day, if you have an account with them. If your bills are very simple, you may only need 4 -- 6 of these per month.

If you have to pay for your money orders - the Post office charges between $1.10 and $1.50 per money order. From what I understand, Wal-Mart sells money orders as well.

If you have trouble maintaining a checking account, switching to money orders to pay bills is an excellent alternative. You will also have to hand over cash, making it very real, when you buy them.

If you have to go through all the trouble to get a money order before you pay a bill, order a subscription, or mail in an order for clothes, you are less likely to spend on impulse. I believe Money Orders will save you some serious money!

How to simplify your bills -

1. Cut down to the basics - mortgage (or rent)/ electric/ insurance/ phone/ heat/ and trash removal.
That would be 6 bills to pay  - 6 money orders to purchase.

2. If possible, in order to simplify your life, get rid of costly cell phone bills/ internet/ cable/ subscriptions, etc.

3. If you pay using money orders, you will not need to balance a checkbook. How much time did that just save you?

4. Use a budget each week, on payday, to plan exactly what to do with your money. Use envelopes or a bank bag to keep the cash until you buy money orders, do grocery shopping, etc.

5. If possible, spend money (or pay bills) on only one or two days each week.  Remember the old days, when the family took a trip to town once a week? They certainly did not spend money every single day!

6. Get a savings account, at your local bank,  to keep cash. This will make it harder for you to spend on impulse. It will also help your money earn a little bit of interest. How many people even have savings accounts anymore?

7. If you have automatic payment for your bills, consider having the payment come out of your savings account, rather than a checking account. You can also have more than one savings account - one for your bills, and one for your savings plan.

8. If you must get a debit card, use a checking account ONLY for debit transactions and be sure you record every single expense right when it happens. Ask the bank for a checkbook register so you can keep excellent records.

Delinquent Bills -

If you are in the middle of a financial crisis, I have some suggestions for paying your bills.

1. If you have a credit card account and the payment is already overdue, you could be charged an additional late fee, and possibly an over-the-limit fee if you don't pay it quickly. If you must pay by phone, here is what you need to know:

- You can pay (by phone) using a checking account. They will ask for your bank's "routing transit number." This is on the left side of your check. Or, you can call your local bank to get this number. You will also need your bank account number.

- The credit company will charge you a fee for an over the phone payment - often $10.

- You will need to have your credit card statement in front of you. You need to tell them your account number, which can be found right on your statement.

Please pay your credit card bills on time, at least a week before the due date, in order to avoid additional fees. I would also be delighted if you canceled your account and cut up your card!  You can just make payments until that account is paid off. Please don't charge anything else on it. If you don't have cash to pay for things, you are risking your financial future by borrowing from the card sharks.

2. Overdue utility bills -

Have you ever received a shut-off notice from your electric or telephone company? You can negotiate a small payment plan, depending on how much money you have available. You do not have to pay an entire overdue balance at once. As a matter of fact, you should NEVER pay off an overdue balance at once, unless you have plenty of money. I do not want you to go hungry. I do not want you to run out of gas for your car. I do not want your children to go hungry or not have medical care. You must have some cash available for regular life.

- Depending on how much you owe, you can offer $10  - $50 extra per month, in addition to your regular monthly fee, until you pay off the overdue balance.  Make sure they understand that you are more than willing to pay your bill and will take care of it as soon as possible. Then make sure you pay as agreed!

3.  Overdue repair bills, and other delinquent accounts -

- Make every effort to pay these in a reasonable amount of time. Sacrifice personal spending, sell something, whatever you need to do in order to get control of these overdue accounts.

- If you are being harassed by phone, get an unlisted number. Bill collectors are trained to keep you on the phone and threaten, scare and coerce you into making promises you probably cannot keep. Some of them even ask for your bank account number so they can do an automatic withdrawal each month. Please do not agree to this! Obviously, if you don't have much money, how will you afford those automatic payments? You could be setting yourself up for bank fees because of an overdrawn account.

- Next, write a letter to your creditor letting them know you are having financial problems. Tell them how much you can pay each month and include a check or money order for your first payment.  As long as you are making every effort to pay this bill, and you pay consistently at the same time each month, your creditor will be happy.

- If you receive a large amount of money, such as a bonus from work, income from an odd job, or a tax refund, please pay off these old bills promptly and thank them for their patience. Remember, they need to earn a living too!

Where to find help -

1. Every bank is more than willing to sit down and talk to you about your bank accounts. They are happy to show you how to balance your checking account, how to write a check and how to fill out a money order.  As a matter of fact, I know a very wealthy man who goes to his banker every single month with a stack of bills and visits while the banker writes out the checks to pay his bills! It is not just the poor who struggle with paying bills!

2. Crown Financial Ministries is an excellent organization. They have several resources and information to help you get control of your finances. They are a Christian Based company founded by the late Larry Burkett.

3. If you are in debt and looking for help in obtaining financial freedom - Dave Ramsey is the place to go!

Here are some outstanding books on Financial Management (these are all older resources, but classics!) -

1. Your Money or Your Life  by Vicki Robin and Joe Dominguez

2.  The Complete Guide to Managing your Money by Larry Burkett

3. Debt Free and Prosperous Living Basic Course by John Cummuta. 

 - What are your favorite resources for simplifying your financial life?

 - What do teenagers today need to learn about money before they can successfully function as adults?

* Join me on the 1st of each month for Our House Account Monthly check -in.  *

Mrs. White
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Debbie S. said...

I would just like to caution anyone about giving your checking account info to the credit card companies. Once you have authorized an electronic transaction with them, they can use this account to withdraw payments in the future.

Dave Ramsey STRONGLY cautions people NOT to give access to bank accounts EVER.

joyce said...

My bank doesn't return checks. They have automated banking via telephone or internet, and I can view my accounts online.

I have automatic drafts coming out each month to cover many of my bills. That way, I don't forget to pay them and incur a late fee as a result.

I think you have to keep meticulous records no matter how you bank and manage household expneses. Many people advocate the envelope system, where cash is kept in envelopes designated for fixed and unexpected expenses.

joyce said...

I meant to make a comment about the bill collectors calling, but I forgot. Even if you get an unlisted number, that doesn't stop them from calling your workplace or family members, trying to track you down. Often they leave "trick" messages. I worked for a place once where I collected on old accounts. I recevied special training in how to do this.

You can request in writing that the calls desist, and I believe they are required by law to comply with your request. This information could be found online, I'm sure. If I did this, I would send the letter certified or registered mail.

Mrs. White said...

Debbie, that's true. The credit card companies do keep a record of our bank accounts. They even do this if we pay using a check through the mail.

In a crisis situation, for young adults - mostly early 20 college age students who are still struggling with understanding their bills, they often get into situations where they pay by check on the phone. It is not ideal and should be a last resort.

A solution to the problem of the creditors having our bank account info on file, would be to close the bank account after the credit card is paid off.

My recommendation for paying credit card bills each money would be to use a Money order. In this way, they never have access to your bank account.

Mrs. White

Mrs. White said...

Joyce, when I suggested people get an unlisted phone number, it was so they would learn how to communicate by mail - which would give them a legal document. It also avoids the problem of being talked into making higher payments than one can afford.

The borrower should be responsible and send a letter immediately with a small payment. As long as they make regular payments, there will not be any harassing phone calls.

On the other hand, if someone is refusing to pay their bills and not even making an effort, nothing will stop creditors from contacting them - not even an unlisted number.

Thanks for mentioning this. It is important for people to understand the difference.

Mrs. White

joyce said...

I didn't mean to imply that it's okay to "skip out" on debts by asking creditors to stop calling. I feel if you owe something, you should pay it. Anyone who is serious about paying their bills can work out some kind of arrangement, and like you say, pay a small amount each month to show their willingness to resolve the overdue account.

However, I do feel if a person is making an honest effort to resolve a debt, he or she should not be harassed by collectors. That's why I suggested writing a desist letter.

Dave Ramsey really has some good advice on how to negogiate with credit card companies and other types of debt.

Anonymous said...

Hi Mrs. White!
These are all great suggestions. Our family uses a military bank (USAA) and they are great at helping us out with things. We do all of our banking through them and we do it all online. We keep all of our receipts and double check them with what the online statement says. I do not usually use our checking acct. for things to make it easier for my husband to keep an accurate acct. Each week he goes grocery shopping with me and the kids and if I need money during the week I simply tell him how much I need and he either gives me cash or he tells me to withdraw it from the ATM. The great thing about the bank we use is that we get the fees paid back to us at the end of the month! I think setting up an automatic bill pay system is great too! We set up the payment date and the amount for the bills that don't change each month. For the bills that do change my husband simply goes in and puts the amount to be paid and the bank pays the bill for us. It is no cost and to my understanding other banks offer this service too. Sorry this is so long but I definitely think that people could avoid some fees if they would simply keep a better account of their finances!

Sarah Lownsbery

Patriots of the Republic Academy said...

We have a checking account which we use only when we have to. All of our paychecks are cashed, and then we deposit just enough money if we have to. Bills are payed on payday, that money is not used for anything else because it is payed (cash) right away.

We pay all of our bills in person, with cash, except for our cell phone bill. Hubby is a truck driver, so we have to have them. We have no home phone. We use electronic check for that, and the only other thing we use our account for is electronic purchases of school things from e-bay, etc.

Normally we make the deposit after the purchase is made, or right before. We know how much it will be and when it will be made. We rarely have more then $10 in our checking account at any one time. It has saved us much money, time and trouble.

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