It sure is very convenient to pay your bills online, as it eliminates writing checks, licking stamps, and going out to the post office every week or so. But, there's more you can do with online bill pay to reduce debt faster, stay ahead of your creditors, and also avoid the biggest pitfall of paying bills in the first place: running out of cash before next pay day.
When using online bill pay, it is much simpler to see which checks would clear before pay day and after pay day, and how much money you have left over after the payments clear.
However, you may be faced with a situation where you have very little cash left after all your checks clear, and sometimes do not have enough cash on-hand to clear all the payments. If this is the case, it would leave you broke until next pay day. If your account balance is not enough to clear all your payments, then hopefully you have some way to add funds to your account manually or automatically.
Your largest bills, such rent or mortgage, are the biggest problem or threat. They take a huge chunk out of your account every month, and it's worse if they are due at the same time or within days of other large bills. Another problem can be your utilities, depending on where you live. In Arizona, for example, the electric bill can vary from $ 80 in the winter to over $ 400 in the summer. The gas bill will do the opposite. So it's hard to forecast and keep a constant cash flow every month, having recurring bills with such a cyclical nature. Imagine paying between $ 80 and $ 100 for several months, and all of a sudden, the electric bill tops $ 200 one month, then $ 300, then $ 400.
If you use online bill pay the manual way, then you probably submit payment after you receive the invoice, and date it on or before the due date on the invoice. If you are a little savvier with the online account, then you can set it up for recurring payments, where a payment is automatically made every month or every four weeks for the same amount. Either way, the payment may clear when you have barely enough to cover it, or may be so large that it drains your account and you can not make other payments due at the same time.
The take away of this article is this: convert all your bills into smaller recurring payments. Schedule them weekly or bi-weekly, rather than monthly. Let's use a couple of examples. Say you pay your auto insurance monthly and it costs you $ 200. Set up a recurring bill payment for $ 50 once a week. If you normally get paid on Fridays, then make the payments effective every Friday. If your car payment is $ 300 per month, make weekly payments of $ 75. The largest impact will be your high dollar expenses, such as the rent or mortgage payment. These will give you the biggest relief, since they will not hit all at once and wipe you out. To manage bills with a cyclical nature, such as the electric bill example I have earlier, calculate the average bill amount over the last 6 months. Then divide this amount by 4 and make that your weekly payment. During the low season, you'll be paying over and creating a credit balance. But then during the high season that credit balance will be used up without increasing your scheduled payments.
In the end, the aggregate of all your payments remains the same. However, the impact of using this strategy is that it allows you to level out your cash usage through the month. The side effect is that you increase your daily cash balance in the bank, and have better visibility of where your cash is going. If you set it up correctly, all your bills will be paid off in advance and you will avoid ever making a late payment.