paying bills ahead (Oct 3, 2006)

Current mood: thoughtful

The following paragraphs were written back in August on a day when I wanted to pay my bills (which I do online) but one of the kids was using the PC, and anyway I had misplaced one of the bills I wanted to pay so didn't know the exact amount I owed. Then it occurred to me: I almost never need to know exactly what I owe on a bill.

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Here is how I avoid two problems at once. Problem one is that I misplace utility bills. Problem two is that my income, while sufficient, is sporadic, so when a utility bill comes I might not have sufficient funds on hand to pay it on time.

The solution is to get a month ahead on each monthly bill -- telephone, electricity, natural gas, maybe even the quarterlies like water and sewer. Of course it's next to impossible for most people to make two months' payments on all utilities all at once. The trick? Throw in another few bucks or so each month until you're a month ahead.

They will not mind getting the extra money -- nor will you mind paying it, really -- as usage of any such utility is fairly continuous, even if the exact amount varies a bit from one bill to the next. They just want to make sure you pay your bill. You can always pay ahead. It's behind that you don't want to be. It's only if you get three or four months ahead that they might call you and inquire why you've sent them so much.

This is not the same as paying credit cards ahead. With credit, you already do owe everything on that "Balance" line. If you bought $1,000 of furniture, you owe the $1,000 all right now, and they're happy as punch if you take 10 years to pay it off, provided you make the minimum payments -- and still happy if you send them a check for the whole $1,000. Yeah they'd like their interest, since that's how they make their money, but there's nothing to lose by paying off credit cards in full every month.

Utility companies, though, get mad if you don't pay in full or if you don't pay on time. Commonly they'll tack on a Late Payment Fee, often a couple of bucks or a percentage of the bill. Do this more than a time or two and it shows up on your credit record, too. You really don't want that to happen.

Let's take a look at how I deal with one bill that is not a credit card bill, my phone bill.

Telephone Bill-At-A-Glance

Previous Balance $30.84
Payments -$75.00
Balance Before New Charges -$44.16
New Charges $68.44
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New Balance $24.28

In prior months, I've paid ahead several dollars. The actual bill -- what I used -- what anyone else would have to pay -- is $68.44.

So here are the relevant numbers:

New Charges $68.44
Rounded to next 5 $70.00
Plus $5 more $75.00 <--pay them this

Doing what I did last month reduced by $6.56 the amount the phone company demands that I pay them. That's $1.56, the difference between the $68.44 new charges and the $70.00 rounded-up-to-the-next-five-dollar increment. That assures I get a negative balance the next month. To that, add $5.00 more in payments, to get that much further ahead.

So next month, assuming my phone usage is identical, my bill will be:

Previous Balance $24.28
Payments -$75.00
Balance Before New Charges -$50.72
New Charges $68.44
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New Balance $17.72

At this rate, I will have a zero balance in about four or five more bills. Working from when I started, with a typical bill about $75, it would take about 15 months (75/5=15) to get a month ahead.

What getting a full month ahead means is this: If I misplace the phone bill and do not get it paid on time, that it will not matter. In essence I have an extra month to pay the bill. Of course I *do* pay it on time, and I *do* pay the full amount. Under no circumstances do I merely pay the "New Balance", or else I am right back where I was.

Once I do attain that "New Balance: $0.00", I *keep* it there simply by taking the next bill and rounding up to the next $5.00. In the examples above, I would send them $70 instead of $75.

This simplifies bill paying quite a bit. In my typical usage, the actual amount of calls I make may vary a bit, but the amount I need to send them rarely changes more than $5 in either direction.

Let's say I do misplace a bill, and cannot remember the exact amount. So long as I send them my usual $70 or $75, even if my actual usage would have required me to send a buck or three or four beyond that, I'm still OK because I am already ahead. If the usage was $77.61 and I send them $75, they're still happy. The next month I'd get a New Balance of $2.39. I just send them this month's probably-$75-used, plus the $2.39, plus the $5-round-up, write a check for $85, and then I've restored my buffer.

Of course, this has nothing to do with being behind on bills, or having $2,000 of payments each month to squeeze out of $1,000 in paychecks. It's simply a way to remove a potential headache or two.