Tuesday, January 11, 2011

Paying Up Front & Avoiding Fees

One of the ways I save a little money is by paying up front for insurance bills, rather than paying an inflated amount each month. For instance, every 6 months I get a new bill from Progressive for our car insurance. I can either make a payment every month, or I can pay for the entire policy upfront meaning that I pay my insurance twice a year. While this is a big chunk to have to pay all at once, paying it all at once costs about $200-$300 cheaper than monthly payments. That's like saving an entire monthly payment for us - twice a year!

On top of that, there is a $5 fee for putting the monthly payment on a credit card. I like to put everything onto my rewards credit card, and even when there are fees involved I have a hard time breaking this habit. But when you pay the bill upfront, not only are you only making one payment, but they waive the $5 charge.

It can be hard to have a big chunk of change like that lying around. Recently another bill that can be paid upfront or in 3 yearly payments came in the mail. They also have a $5 charge if you choose to break it into 3 payments, but because there's no additional savings and my husband doesn't budget quite intensely as I do, I usually don't have him pay it all up front. However, this time I just happened to have a 0% convenience check offer through my FlexPerks rewards card that gave 3500 bonus points for any check over $1000. I cash out my points as soon as they accumulate, so 3500 points represents $35 of my next $50 cash out. Although USBank has increased their balance transfer/convenience check fees to 4% from 3%, along with the $15 in payment savings, I was able to write a check for $1000 and actually save $10. If the savings are big enough, a convenience check offer like this one could help you get started.

In my case this helped give us a boost, but the only way to be able to pay bills like this is to budget savings for them ahead of time. It's not so easy to pay a $1000 bill at the drop of a hat, but could you put aside $200 in savings over the next 5 months? In my husband's case, at 0% interest, he can pay me back over the next few months. The bill won't be due again until next January, so he can then continue to set aside a little extra every month and be ready for next year.

I think another great thing to incorporate in this advanced planning is online savings accounts. You can easily open accounts with ING Savings or SmartyPig and earn interest along the way. ING is currently at 1.1% and SmartPig is at 1.35%. Open multiple accounts and give them names like "Car Insurance" or "Vacation Fund". Make a plan for when you'll need them and how much you'll need, and start stashing away a little each month. This can also be a good safety net along the lines of an emergency fund. If you're laid off, or injured and not working, you might have some extra discretionary money in the Vacation Fund that you can now use to pay your bills. Or if you need some extra padding before you get back on your feet, you can use the Car Insurance money for necessities and pay it monthly when it becomes due. These shouldn't be your emergency fund, but I think they can be a great supplement.

On the other hand, when my health insurance recently changed and the savings I'd been getting from paying a year in advance was wiped out, I chose to start paying monthly. I didn't see any reason to hand over a couple thousand dollars when I could put that money to work for me compounding interest and just pay $150 bill each month. Figure out which bills you could be saving on. A $5 fee doesn't sound like much, but it can certainly add up. The question is, will it be adding up for you, or adding up for the companies you're paying?

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