Why not pay credit card bill as soon as it arrives?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
mediahound
Posts: 767
Joined: Fri Mar 02, 2007 5:43 pm

Why not pay credit card bill as soon as it arrives?

Post by mediahound »

I've heard mention of people liking the 'float' they get with credit cards, allowing them at times, 45 days before they need to pay for an item purchased if they purchased it at the beginning of their monthly credit card cycle.

But I don't understand why this matters. Because once you buy something, that money is already spoken for so you can't really do anything with it now. Rather, you need to set it aside to pay off the credit card.

Is it really of any benefit not to send in a payment until right before it's due rather than just paying the bill as soon as you get it?
WendyW
Posts: 341
Joined: Sat Dec 08, 2012 4:01 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by WendyW »

'
Has to do with the time value of money, which is the cornerstone of all finance.

Receiving $1 today is better than receiving $1 a month from now.

Paying $1 a month from now is preferable to paying $1 today.

Admittedly, in today's environment, earning 0.01% on your chequing account balance isn't perceptably different from paying your credit card early and earning 0.00% on that same money.
MnD
Posts: 4648
Joined: Mon Jan 14, 2008 12:41 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by MnD »

Cash flow.
All the money to pay for things charged July 9-August 8 doesn't have to arrive in your checking account until September 4, one day before the bill due date of September 5 for that billing cycle.
The float is actually more than 45 days for some charges - almost two months in fact. The average float on any particular charge is around 45 days.

The big bonus on cash flow is the very first month when you start "charging everything" versus cash or debit. Your income comes in as usual but you "lose" a month of spending liability that won't show up unless you go back to using cash/debit.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
ddunca1944
Posts: 940
Joined: Fri Apr 01, 2011 1:49 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by ddunca1944 »

MnD wrote:Cash flow.
All the money to pay for things charged July 9-August 8 doesn't have to arrive in your checking account until September 4, one day before the bill due date of September 5 for that billing cycle.
The float is actually more than 45 days for some charges - almost two months in fact. The average float on any particular charge is around 45 days.

The big bonus on cash flow is the very first month when you start "charging everything" versus cash or debit. Your income comes in as usual but you "lose" a month of spending liability that won't show up unless you go back to using cash/debit.
+1
Part of our monthly income comes in on the 4th Wed of the month. Using a cc and payg it off on the due date eliminates any cash flow issues. Another reason is that our credit union pays 1.75% on the checking account balance.
Geologist
Posts: 1524
Joined: Fri Jan 02, 2009 7:35 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by Geologist »

The Finance Buff, a frequent poster here, had the following on his blog: http://thefinancebuff.com/3-good-money- ... world.html

One of them was "paying bills as late as possible" for which TFB was substituting "Pay Bills As Soon As They Arrive." His basic argument is that today the float isn't worth the risk of you or your bill-paying service screwing up and not paying on time. Overall, it makes sense to me.
User avatar
frugaltype
Posts: 1952
Joined: Wed Apr 24, 2013 9:07 am

Re: Why not pay credit card bill as soon as it arrives?

Post by frugaltype »

In days of actual interest on savings/checking accounts, it would matter. Nowadays I pay things off sooner just to get them out of my to do list.
User avatar
ResearchMed
Posts: 11224
Joined: Fri Dec 26, 2008 11:25 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by ResearchMed »

This made more "sense" back in the day when deposit interest rates were very high (and not very risky).

Consider back in the early/mid 80's, when even a money market account paid interest into the teens, as an extreme example.

So if you could wait a month or more "extra" to keep your money in some interest bearing account, WITHOUT incurring extra financing fees/interest (remember - the interest one would pay was also very high), then there'd be a "profit". The more money involved, the more the "profit".

Today, one would need to keep the money in some sort of reasonable investment, or have a huge amount to float, to have this make much sense or money.

But consider if one could KEEP cycling the amount due, especially if one had high spending that was being charged *and* if there was a reasonably high return on the money not sent in.
That is, what one "would have paid" in January doesn't get paid and is invested. In Feb, pay Jan. In March, pay Feb. Etc. That first amount would just sit there, earning (or losing, if in the market).
That could end up like having that amount (one month's worth) always invested, although if in the market, this would be much riskier than when one could just use money market accounts.

RM
User avatar
ResearchMed
Posts: 11224
Joined: Fri Dec 26, 2008 11:25 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by ResearchMed »

By the way, this strategy is/was very different from not paying the bill because one wanted to use NEXT month's income to pay THIS month's bills. Note that in this case, the money is right there, invested (money market back in the day), so it's "there" in case of any problem at all with "next month's income".

RM
skweegull
Posts: 6
Joined: Thu Jul 11, 2013 5:09 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by skweegull »

On the other hand, there might be a (small) advantage to paying right before your next month's statement comes out, rather than on the due date. That's usually a few days earlier. The reason is that for credit score purposes, "debt" which is generally a negative, is the balance your bank reports to the credit bureaus every month. Most of the time that's the balance due whenever the new statement comes out. In other words, even if you pay in full every month, if a high balance gets reported, it looks like you are in a lot of debt.

For credit card related topics I have found the forums at creditboards.com to be of the same quality as the bogleheads ones are for investing, so I would recommend anyone to take a look.
sesq
Posts: 577
Joined: Wed Jan 30, 2013 9:24 am

Re: Why not pay credit card bill as soon as it arrives?

Post by sesq »

Doesn't matter much in the current rate environment to try to maximize your interest income by maxing the days you float other people's money at 0%.

The credit score anal folks pay off (or may allow 1-2% utilization) before the statement cuts (or for a couple of banks that report to the bureaus on the calendar month, before the end of the calendar month) in their quest for a perfect score. If you read forums focused on scores, you only want 1 to 3 balances to report, with low amounts utilized, varying the different cards that report. I am not one to judge hobby's, but at a certain point excellent credit isn't trumped by more excellent credit in the lending marketplace.
User avatar
FNK
Posts: 1360
Joined: Tue May 17, 2011 7:01 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by FNK »

What everybody said.

You're also correct that you shouldn't consider the money "available". If you're disciplined, you treat a credit card charge and a check the same. Your available cash is net of CC balances.
Topic Author
mediahound
Posts: 767
Joined: Fri Mar 02, 2007 5:43 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by mediahound »

frugaltype wrote:In days of actual interest on savings/checking accounts, it would matter. Nowadays I pay things off sooner just to get them out of my to do list.
Yeah, for me it is more convenient to pay the bill when I get it, and be done with it. This way, I only have to deal with it once.

My checking account earns zero interest. My bank savings account also earns a pittance.

Doesn't seem worth it, and seems like more work, to try to time my payments to arrive at the last minute..

I can't see how my cashflow would be any worse by paying bills earlier.
User avatar
arthurdawg
Posts: 902
Joined: Mon Jun 02, 2008 7:47 am

Re: Why not pay credit card bill as soon as it arrives?

Post by arthurdawg »

I pay them off as soon as they arrive... Back when prime money market was running 8-9% a year, I'd hold things.

In any case, I've noticed that bills have tightened up substantially over the past 10-15 years. Bills that were, say, due June 1st were overdue August 15th. Now the June 1st bill is due June 15th!

I wonder if auto-payments have affected this... I actually have a spreadsheet to keep up with my automatic payments and where they come from! I write less than one check per month these days.
Indexed Fully!
jimbojones
Posts: 127
Joined: Sat Feb 18, 2012 7:53 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by jimbojones »

You're making the wrong comparison. Assuming you keep your cash balance constant, the "float" is either used to pay down debt or invested in something. The appropriate comparison rate is your interest rate on your debt or the expected return of your investments. I'll take that free 5-10% all day everyday.

Think of it this way: do you see any value in 0% credit card offers? A month or two of "float" has the same effect, just over a shorter timeframe.
tibbitts
Posts: 12899
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by tibbitts »

People talk about it because it mattered when interest rates on cash were significant. Perhaps it will matter again some day. Now it doesn't.

Paul
Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by Default User BR »

Regardless of interest rates, I still pay near the due. All of my cards have email reminders, I pay when those arrive.


Brian
User avatar
Toons
Posts: 13944
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Why not pay credit card bill as soon as it arrives?

Post by Toons »

frugaltype wrote:In days of actual interest on savings/checking accounts, it would matter. Nowadays I pay things off sooner just to get them out of my to do list.
+1 :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
User avatar
mickeyd
Posts: 4850
Joined: Fri Feb 23, 2007 3:19 pm
Location: Deep in the Heart of South Texas

Re: Why not pay credit card bill as soon as it arrives?

Post by mickeyd »

All of my bills are paid automatically thru my bank. When I receive the bill I manually deduct the payment from my check register (checking act) and move on with life. The CC company/utility/etc deduct it according to their cycle (DC deducts it 10 days before the end of the month).
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
BerkeleyChris
Posts: 66
Joined: Sat Feb 09, 2013 11:23 am

Re: Why not pay credit card bill as soon as it arrives?

Post by BerkeleyChris »

i like the idea of not owing any money to anybody. I pay off my balance the day the billing period closes and if I put business expenses on the card, I put in several payments per month as the reimbursement checks arrive. having a balance due really annoys me...having it be zero is of greater worth to me than a "float"
yosef
Posts: 338
Joined: Tue May 24, 2011 2:10 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by yosef »

I'm just surprised at the number of people that are still paying bills manually. There's no risk in taking advantage of the float when the bills pay automatically.
Woodshark
Posts: 518
Joined: Fri Jan 07, 2011 4:09 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by Woodshark »

I pay bills every MONDAY. With the micro rates of returns on savings or checking it does not matter when they came in, it all gets handled on Monday. Done and done.
rotorhead
Posts: 514
Joined: Wed Mar 17, 2010 3:59 pm
Location: Florida

Re: Why not pay credit card bill as soon as it arrives?

Post by rotorhead »

All our routine bills are paid automatically each month when due. We only have two credit cards; and I pay them the day before they are due via EFT. I just have this thing about paying them early. I know the float isn't what it used to be; but as long as they are paid on time that's what matters.
mptness
Posts: 185
Joined: Sun Jun 03, 2012 3:54 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by mptness »

WendyW wrote:'
Has to do with the time value of money, which is the cornerstone of all finance.

Receiving $1 today is better than receiving $1 a month from now.

Paying $1 a month from now is preferable to paying $1 today.

Admittedly, in today's environment, earning 0.01% on your chequing account balance isn't perceptably different from paying your credit card early and earning 0.00% on that same money.
+1
I take advantage of the 30 days because it is a habit. And when interest rates increase, it will be a good habit again.
tomd37
Posts: 3546
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: Why not pay credit card bill as soon as it arrives?

Post by tomd37 »

Ddunca1944,

Am curious to know what credit union is currently paying 1.75% interest on checking accounts these days and what rules might apply to obtain that rate of interest. :moneybag
Tom D.
User avatar
Rainier
Posts: 1574
Joined: Thu Jun 14, 2012 5:59 am

Re: Why not pay credit card bill as soon as it arrives?

Post by Rainier »

This has nothing to do with earning interest on the float and has everything to do with managing cash flow. At least, for me it does.

It allows me to keep less money in my checking account, and to also pay last month's expenses with this month's income. Which means I can save that first month of income indefinitely (invest it) for free. So it's not the 1 bps of interest I'm earning with extra cash in my checking account, it's the few thousand dollars I get to invest for free (courtesy of the credit card company).
NYNewbie
Posts: 6
Joined: Thu Jul 11, 2013 7:55 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by NYNewbie »

I have to admit I pay it off when I get it. I am afraid I will forget it one month...I'd probably stop if I was earning anything on the cash.
tibbitts
Posts: 12899
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by tibbitts »

Auto-pay is ok, except if you don't notice some charges (unauthorized, or just a mistake) and the bill ends up being more than the balance in your checking account. I know that some people monitor every charge every day on every account - with text messages, for example - but that gets to be a little tedious for some of us.

Paul
fmhealth
Posts: 206
Joined: Tue Mar 25, 2008 10:24 am

Re: Why not pay credit card bill as soon as it arrives?

Post by fmhealth »

I guess I have a slightly different perspective on this topic. Whenever I get any bill, CC, HOA, cell, utility, etc. I pay TRIPLE the invoice amount.

Thus, most months of the year I only receive bills that have credit balances. Makes my life much easier. Sure I lose a few dollars on the float but it's insignificant.

Be Well,
fmhealth
MnD
Posts: 4648
Joined: Mon Jan 14, 2008 12:41 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by MnD »

Rainier wrote:This has nothing to do with earning interest on the float and has everything to do with managing cash flow. At least, for me it does.

It allows me to keep less money in my checking account, and to also pay last month's expenses with this month's income. Which means I can save that first month of income indefinitely (invest it) for free. So it's not the 1 bps of interest I'm earning with extra cash in my checking account, it's the few thousand dollars I get to invest for free (courtesy of the credit card company).
Exactly. And you are about the 4th person to clearly communicate this.
The float and an average return on my AA makes me $490 per year.
Cash back on CC's another $2100 per year.
Sign-on bonuses on CC's around $3000 per year.

The one thing everyone agrees on here is that cash earns nothing.
So don't run away from float which frees up cash equal to your monthly float to invest in things that actually earn money.
I haven't been sent a 1099-INT in three years. In contrast the above sums to $5590 from using the best reward cards for everything possible, auto-paying in full on the due date, and paying attention to sign-up bonuses. Seems like a no-brainer for people that prefer more money.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by Default User BR »

yosef wrote:I'm just surprised at the number of people that are still paying bills manually. There's no risk in taking advantage of the float when the bills pay automatically.
I want to be sure that I've reviewed every bill before it's paid. If I have to the site to do that, I might as well pay then too.


Brian
scrabbler1
Posts: 2544
Joined: Fri Nov 20, 2009 2:39 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by scrabbler1 »

Back in my working days, I would time paying my rare CC bill (if it were fairly large) to just follow a recent paycheck in order to smooth out my cash inflows and outflows. I would still leave a safe buffer so it would arrive at the bank well ahead of time. (This was when I ahd to mail my CC payments back in the 1990s.) In the 2000s, I began paying them in person, either at a bank branch near my office or at one near where I live, with the same buffer provisions but reduced by a few days once the concerns about post office deliveries were gone.

Since I stopped working 4.5 years ago, my main cash inflows occur at the start of each month but my CC bill also arrives at the start of the month so there are no cash flow issues as far as timing my payment to occur after a recent cash inflow. So I pay the rare CC bill the next time I am passing by my local bank branch while doing local errands or when I feel like taking a walk.

This procedure will be changing very soon, however, because I just opened a CC (cash-back) with the same bank which has my checking account. Very soon I will be able to pay my CC bill with a few point-and-clicks from my online banking and without having my bank mail a check to another bank. The same issues with cash flows remain, it is just that I won't have to take that walk any more.
User avatar
frugaltype
Posts: 1952
Joined: Wed Apr 24, 2013 9:07 am

Re: Why not pay credit card bill as soon as it arrives?

Post by frugaltype »

fmhealth wrote:I guess I have a slightly different perspective on this topic. Whenever I get any bill, CC, HOA, cell, utility, etc. I pay TRIPLE the invoice amount.

Thus, most months of the year I only receive bills that have credit balances. Makes my life much easier. Sure I lose a few dollars on the float but it's insignificant.
I often pay double on smaller bills like the phones, some utilities. Saves me time and a stamp next time. Come to think of it, I pay rubbish pickup once a year.
Last edited by frugaltype on Fri Jul 12, 2013 7:32 am, edited 1 time in total.
User avatar
frugaltype
Posts: 1952
Joined: Wed Apr 24, 2013 9:07 am

Re: Why not pay credit card bill as soon as it arrives?

Post by frugaltype »

Default User BR wrote:
yosef wrote:I'm just surprised at the number of people that are still paying bills manually. There's no risk in taking advantage of the float when the bills pay automatically.
I want to be sure that I've reviewed every bill before it's paid. If I have to the site to do that, I might as well pay then too.
I don't let any business except maxemail take money out of my accounts automatically. Too easy for a mistake on their part or a fraudulent charge to trash my accounts. Been there, had that happen.
ddunca1944
Posts: 940
Joined: Fri Apr 01, 2011 1:49 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by ddunca1944 »

tomd37 wrote:Ddunca1944,

Am curious to know what credit union is currently paying 1.75% interest on checking accounts these days and what rules might apply to obtain that rate of interest. :moneybag

Kitsap Credit Union (http://www.kitsapcu.org). Requirements are one (at least) auto deposit, electronic statements and 12 debits/mo. I use the debit card for small purchases and for the gas station that charges .10 less for cash/debit purchases. The 1.75% is paid on the first $10K and the base rate on amounts over that.
tomd37
Posts: 3546
Joined: Thu Mar 01, 2007 10:39 pm
Location: Middle Tennessee

Re: Why not pay credit card bill as soon as it arrives?

Post by tomd37 »

Thanks for the info. My local bank (Reliant Bank) has similar requirements, but only pays 1.25% interest on the first $50,000 and 0.20% on amounts above the $50K. Fours years ago they were paying 6.10% on the same amount.
Tom D.
User avatar
VictoriaF
Posts: 19549
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Why not pay credit card bill as soon as it arrives?

Post by VictoriaF »

I pay my credit card bills in full as soon as I have a chance after the bills arrive (via email). I consider excessive cash flow and cash reserves being aspects of antifragility--in contrast with tight planning and chasing every penny of the interest, which are fragilizing.

Victoria
Last edited by VictoriaF on Fri Jul 12, 2013 9:07 am, edited 2 times in total.
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
LordB
Posts: 114
Joined: Sat Mar 13, 2010 7:03 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by LordB »

Like some others I pay the CC bill right when I get it.

Not having that money sitting in my bank account makes me less likely to spend more and the amount I would earn on the float is minimal.
ingenue
Posts: 82
Joined: Thu Jul 21, 2011 8:56 am

Re: Why not pay credit card bill as soon as it arrives?

Post by ingenue »

My credit card use is primarily for rewards accumulation, discounts, and as a buffer between the big bad world (fraud) and my checking account. I don't puposely rush or delay payment, though sometimes I will make more than one payment in a cycle.
User avatar
wilpat
Posts: 534
Joined: Sun Jan 20, 2008 7:30 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by wilpat »

I prefer to have transactions to be "completed" rather than "pending".
It seems to make me more comfortable -- its just me! :happy
If there was any real money to be saved by paying later I would, but if it costs me more than $15.00 per year I would be surprised!
Contrary to the belief of many, profit is not a four letter word!
david9117
Posts: 142
Joined: Tue Dec 25, 2007 8:00 pm
Location: San Diego, Ca

Re: Why not pay credit card bill as soon as it arrives?

Post by david9117 »

This is a moot issue for me. I have setup automated ACH withdrawl from my bank account on the last day of bill due date. Has worked for last 3-4 years without any issues and I maximize my float with zero effort.
connya
Posts: 132
Joined: Tue Mar 05, 2013 4:01 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by connya »

Aside from the checking account interest and the extra couple thousand to invest, putting all nonrecurring monthly expenses on a CC and not paying it off immediately makes planning much easier.

At the beginning of every month, I know exactly how much money needs to be in my checking account by the beginning of next month. If I have extra, I can move those funds to investments or savings, and if there is a deficit, I have a month to fix it or to pull funds from my e-fund if necessary.

Even if there was no financial benefit at all, I still would not pay off the CC immediately because that would destroy a useful financial planning tool.
MnD
Posts: 4648
Joined: Mon Jan 14, 2008 12:41 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by MnD »

I'd rather have $490 more income per year on average versus some good feelings about paying my credit card bill to MegaBank a month early.
It's not big bucks but it's one of three revenue streams generated by credit card use along with cash back and sign-up bonuses that sum to around $5600 annually. Again, not big bucks, but how does that compare to what folks earned last year on bank interest? I think I made $8 or something like that.

An ongoing 30 day additional float on $7K in monthly CC spending translates to $7K more I can have in investment accounts at all time.
The float is not sitting in in a 0.01% bank, but rather it is 7K that is freed up on an ongoing basis and hence is distributed among investment accounts like any other funds that are not needed for short-term purposes. With an moderately aggressive AA investment funds earn on average about 7%. So an annual average return of around $490 in my specific situation.

Money is fungible - there is no dedicated account needed to keep $7K in all safe and dry and ready to pay MegaBank. After 25 years of systematically saving and investing and I suspect I could _somehow_ manage to come up with the $7K one-time additional funds that would be required in the unlikely event that I was required to unwind the float. Borrowing money from other entities at little or no cost and investing the float for higher returns is a fundamental principal of finance. By looking at the big picture instead of looking at personal finance as all these various dedicated little piles of money earmarked for this or that, opportunities arise. :happy
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
User avatar
bertilak
Posts: 8163
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why not pay credit card bill as soon as it arrives?

Post by bertilak »

For me, it is the flexibility. I can time payments to AFTER income hits my bank.

The float gives me a small, short-term, emergency fund.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
House Blend
Posts: 4811
Joined: Fri May 04, 2007 1:02 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by House Blend »

frugaltype wrote:
Default User BR wrote:
yosef wrote:I'm just surprised at the number of people that are still paying bills manually. There's no risk in taking advantage of the float when the bills pay automatically.
I want to be sure that I've reviewed every bill before it's paid. If I have to the site to do that, I might as well pay then too.
I don't let any business except maxemail take money out of my accounts automatically. Too easy for a mistake on their part or a fraudulent charge to trash my accounts. Been there, had that happen.
Fraudulent charges can happen even if you haven't signed up for anything.

Anyone with your account number can drain the account. (Or at least try.)

Anyone capable of entering typos into the field containing the account number can drain your account. (I've had this happen to me--the account wasn't drained, but a check written on someone else's account was incorrectly scanned and deducted from my account.)
Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by Default User BR »

House Blend wrote:
frugaltype wrote:I don't let any business except maxemail take money out of my accounts automatically. Too easy for a mistake on their part or a fraudulent charge to trash my accounts. Been there, had that happen.
Fraudulent charges can happen even if you haven't signed up for anything.
It's much better to have a fraudulent charge disputed before the CC company has taken the money out of your bank account.


Brian
User avatar
Rainier
Posts: 1574
Joined: Thu Jun 14, 2012 5:59 am

Re: Why not pay credit card bill as soon as it arrives?

Post by Rainier »

MnD wrote:I'd rather have $490 more income per year on average versus some good feelings about paying my credit card bill to MegaBank a month early.
It's not big bucks but it's one of three revenue streams generated by credit card use along with cash back and sign-up bonuses that sum to around $5600 annually. Again, not big bucks, but how does that compare to what folks earned last year on bank interest? I think I made $8 or something like that.

An ongoing 30 day additional float on $7K in monthly CC spending translates to $7K more I can have in investment accounts at all time.
The float is not sitting in in a 0.01% bank, but rather it is 7K that is freed up on an ongoing basis and hence is distributed among investment accounts like any other funds that are not needed for short-term purposes. With an moderately aggressive AA investment funds earn on average about 7%. So an annual average return of around $490 in my specific situation.

Money is fungible - there is no dedicated account needed to keep $7K in all safe and dry and ready to pay MegaBank. After 25 years of systematically saving and investing and I suspect I could _somehow_ manage to come up with the $7K one-time additional funds that would be required in the unlikely event that I was required to unwind the float. Borrowing money from other entities at little or no cost and investing the float for higher returns is a fundamental principal of finance. By looking at the big picture instead of looking at personal finance as all these various dedicated little piles of money earmarked for this or that, opportunities arise. :happy
Most people don't actually read posts, they just comment on the OP.

This is the same kind of float Berkshire Hathaway develops from their insurance operation. It's free money to invest in the market.
david9117
Posts: 142
Joined: Tue Dec 25, 2007 8:00 pm
Location: San Diego, Ca

Re: Why not pay credit card bill as soon as it arrives?

Post by david9117 »

Paying ones credit card bill does not imply that you agree with all the charges. You have 60+ days to dispute the charges. In my 20+ years of using credit cards had only one fradulent charge. The charge was so outrageous that the CC company themselves call me to confirm (did I buy the ~$1200 worth of magazine subscriptions in Australia !). Have not seen $10 range fraud charges on my CC yet.
MnD
Posts: 4648
Joined: Mon Jan 14, 2008 12:41 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by MnD »

Default User BR wrote:
House Blend wrote:
frugaltype wrote:I don't let any business except maxemail take money out of my accounts automatically. Too easy for a mistake on their part or a fraudulent charge to trash my accounts. Been there, had that happen.
Fraudulent charges can happen even if you haven't signed up for anything.
It's much better to have a fraudulent charge disputed before the CC company has taken the money out of your bank account.
Fraudulent charges occur (on average) 45 days before anyone is going to take the funds out of your account. In the two cases of this in my 32 years of credit card use, the fraud detection team at the CC company called me within hours of the charges. I check my transactions regularly so it would be a few days at most if fraud charges were not detected by the CC company.
As soon as you confirm they are fraudulent, the CC company must and will immediately credit your account for the charges. They then "investigate" and will send you an affidavit to sign indicating that you did not make the charges. Within a certain number of days prescribed by law they will conclude the investigation and make the credit a permanent one, unless they have solid reason to believe you or a family member are trying to commit CC fraud. In that case you will probably have detectives showing up at the door so you will have a number of concerns.

It would be difficult for fraudulent charges coupled with auto pay in full to "trash your account" as someone indicated. You have many weeks (4 to 8) before any given charge is paid for using autopay in full. If you were really concerned, you could always cancel the autopay for the upcoming month where the fraudulent charges were made.

I have every possible expense set to autopay by credit card. So all recurring charges possible and virtually all non-recurring charges end up on the card. I then have all credit cards set for billing and auto pay in full dates all on the same day of the month. You can request a change in statement due date whenever you get a new card. So once a month I have all past recurring and non-recurring charges settled and totaled on the cards, and have another full month before those bills are due and automatically paid. I can count on one hand the bills that aren't on the card. A small mortgage, housecleaners, trash, one of two college bills and an occasional small ATM cash withdrawal.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
mptness
Posts: 185
Joined: Sun Jun 03, 2012 3:54 pm

Re: Why not pay credit card bill as soon as it arrives?

Post by mptness »

MnD wrote:I'd rather have $490 more income per year on average versus some good feelings about paying my credit card bill to MegaBank a month early.
+1
The $490 would be more likely to make me feel good too. :moneybag
In my opinion MnD and Rainier have this right. And WendyW had the correct answer right away which I will quote again:
WendyW wrote:Has to do with the time value of money, which is the cornerstone of all finance.
User avatar
G-Money
Posts: 2867
Joined: Sun Dec 09, 2007 7:12 am

Re: Why not pay credit card bill as soon as it arrives?

Post by G-Money »

Default User BR wrote:
House Blend wrote:
frugaltype wrote:I don't let any business except maxemail take money out of my accounts automatically. Too easy for a mistake on their part or a fraudulent charge to trash my accounts. Been there, had that happen.
Fraudulent charges can happen even if you haven't signed up for anything.
It's much better to have a fraudulent charge disputed before the CC company has taken the money out of your bank account.
True. But the handful of times I've had a fraudulent charge on my CC, I disputed the charge but nevertheless paid off my CC in full. The refund was credited to my account, and I simply owed less on my next statement.
Don't assume I know what I'm talking about.
Post Reply