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
Sam I Am
Posts: 2062
Joined: Tue Feb 20, 2007 7:58 pm

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

Post by Sam I Am »

Message deleted.
Last edited by Sam I Am on Sun Oct 06, 2013 10:48 am, edited 1 time in total.
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 »

Geologist wrote: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.
Why change a "good money" habit today if you will possibly have to change back at some future date? It seems simpler to just make sure to pay on or shortly before the due date.
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 »

G-Money wrote: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.
This has been my experience as well. The disputed charge and your payments are completely disconnected. They do not relate a payment you make to any particular charge.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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 »

A statement credit issued before the billing date is reflected in the payment.
If the fraud charges occur before the statement date but the corresponding statement credit is after the billing date - then it gets murky.
Amex does something interesting with any sort of statement credit issued after the billing date. They reduce the "payment in full" pulled for the prior statement period, effectively giving you the benefit of the statement credit a month early. I do not recall if Visa/MC does this or not.
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.
PacNorWest
Posts: 89
Joined: Mon Feb 22, 2010 11:07 pm

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

Post by PacNorWest »

I prefer to pay off credit card charges two or three times a month.
That reduces the amount of revolving credit charge total - which in turn boosts my credit rating.
Revolving CC amounts accounts for 30 percent of how your credit rating is figured.

So yes, it will help your credit score if you pay off the debit each month.
jay22
Posts: 886
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

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

Post by jay22 »

I pay it off as soon as I get the email. One less thing to worry about.

But that's just me, I prefer to keep things simple in life. :)
TheOscarGuy
Posts: 1132
Joined: Sat Oct 06, 2012 1:10 pm
Location: Where I wanna be.

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

Post by TheOscarGuy »

mediahound wrote: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?
I can not speak to the "float" here, but:
Sometimes it matters that you not pay, until the credit card company has sent you the monthly bill. This is particularly important when you are new to the whole "credit score" game, and want to get in the good books of credit card companies to build your score.
taegirain3
Posts: 52
Joined: Sun Apr 21, 2013 2:41 pm

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

Post by taegirain3 »

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).
Can you expand a bit on how you do this?

Thanks!
Dulocracy
Posts: 2304
Joined: Wed Feb 27, 2013 1:03 pm
Location: Atlanta, GA

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

Post by Dulocracy »

My wife and I pay our credit card in full every paycheck (for us, twice a month). This way, we keep a constant eye on our spending. They money we save by being aware of our finances is more than the 0.75% annual interest that covers the two weeks we would have had the money.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

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

Post by gkaplan »

I always had paid my credit card bill in full as soon as it arrived. The last several months, however, I have experienced a cash flow problem, so I have been waiting to pay my credit card bill (in full) about two or three days before the due date. I should have my cash flow problem resolved next month, but I don't know if I'll go back to paying my credit card bill when it comes in.
Gordon
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 »

PacNorWest wrote:I prefer to pay off credit card charges two or three times a month.
That reduces the amount of revolving credit charge total - which in turn boosts my credit rating.
Revolving CC amounts accounts for 30 percent of how your credit rating is figured.

So yes, it will help your credit score if you pay off the debit each month.
I do what you do, a self-imposed weekly payment plan just to keep the max reported balance down. I started doing this when my credit score took a hit for too high a balance, even though it was ALWAYS paid down to zero each month.

Just be careful you don't pay the full amount before you are billed. For a while my weekly payments left me with a zero balance at the end of each month. When I eventually let a balanced to get billed. I got dinged for "a previously inactive credit account became active!" The credit bureaus don't see the day to day activity; they only see the month-end balances. So they saw the card go "inactive" (zero balance for a few months) and then become active again.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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 »

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.


Brian
I use Mint to review transactions that hit my account daily. And I only have to visit one site to do it.
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 »

G-Money wrote: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.
That's your method, and that's fine. I prefer not to have auto-pay and have potentially large amounts drain the account. Yes, indeed, one should check before the auto-pay date, but I prefer just to get the alert email, check the charges, pay with a couple clicks, and be done all at once.


Brian
Paul78
Posts: 312
Joined: Sat Dec 12, 2009 11:17 am

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

Post by Paul78 »

-if you spend more then your credit card max a month. There was a short period when I would spend 2-3 times my max credit card limit a month (expenses for a side business). If you spend more then your max in a month you clearly have to pay off the card multiple times (including before it is due) during that month.

- if you spend money you do not have. Again with my side business I would lay out 30k+ in capital with a return of 31-33k over time (2 week to 2 month period). Thus I keep the balances on my credit cards until I sold off enough of the capital.

-If you spend well below your credit card max (my current situation) why not just schedule an auto payment for the payment due date? Those extra 21-45 days (different credit cards have different payment windows) you can keep you money in a saving account and earn a little bit. It is extremely easy to set up an auto payment and over time (ie 20-30-40 years) you will actually make a little cash by delaying the payment.

I will admit in my current situation I simply pay off my credit cards ASAP (many times before the statement is even out). I do this because my checking account pays .00000 something interest and I basically have no money in my checking account (monthly expenses and a few extra thousand). My "emergency" cash is in taxable accounts.
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 »

taegirain3 wrote:
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).
Can you expand a bit on how you do this?

Thanks!
Suppose you were cash/debit only and spent $4000 per month. All of your savings go into other accounts so to cover your spending, you deposit $4000 in your checking to cover your spending.

On August 1 you switch to "charge everything" with a credit card that closes their statement at the end of the month. Lets pretend you can charge everything including your rent. On August 31 your statement closes, you have the $4000 in the bank to pay your bill but guess what - your bill isn't due till September 27.

By September 27 you have yet another $4000 in your checking account for a total of $8000. This cycle will continue and you'll find that you will always have at least an "extra" $4000 in your checking account, a maximum of $8000 right before the bill is due and an average surplus of $6000. You of course use "auto-pay in full on due date" so you never miss a payment or carry a balance.

So at a minimum you can withdraw the $4000 and invest it in whatever your long-term asset allocation is. 75% stocks/25% bonds perhaps. Therefore you are not earning 0,01% interest on the $4000 as many people in this thread assume, but rather you are earning whatever you are invested in.

Presumably you are a Boglehead and your investment net worth is many many times more than your monthly credit card spending. So in the unlikely event you had to unwind the float, you would have the resources to come up with the extra $4000 in the unwind month to do so.

Lets assume your long-term AA earns 5%. That's $200 earned per year on the invested float.
You use the Fidelity 2% cash back on everything credit card as your main card - another $960 per year.
For your rarely used backup credit card, you pick whatever card has the best sign-up bonus and you replace it annually before the annual fee hits.
The best sign-up bonuses have a value of $400-$500.

So $200+960+500= $1660 per year. Now you have beer money. :beer

This isn't for everyone but personally I like free money and a system that organizes 95% of my spending on one statement that isn't due for on average 45 days after I've spent it.
Last edited by MnD on Sat Jul 13, 2013 11:53 am, edited 1 time in total.
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.
travellight
Posts: 2872
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

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

Post by travellight »

ditto mnd, david9117, and others.

I have all cc on autopay. My account can't be trashed because I have my checking account backed up with a giant heloc. The cc company refunds/credits all fraudulent charges and all fees/interest that might be incurred with them. I have had my bank account hacked fraudulently but not due to my credit cards; all funds were restored and all fees taken care of.
364
Dick D
Posts: 179
Joined: Sat Jun 16, 2007 8:55 am
Location: North Carolina

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

Post by Dick D »

I pay my total credit card owing at the end of the month and do not pay by statement.
User avatar
Tycoon
Posts: 1500
Joined: Wed Mar 28, 2012 7:06 pm

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

Post by Tycoon »

I pay my credit card balances electronically on the day they are due. I give credit card companies the privilege of granting me credit. Paying early would complicate our relationships.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Getting rich off of "smart people's" behavioral mistakes.
User avatar
dratkinson
Posts: 5273
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

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

Post by dratkinson »

(added) It's cheaper to wait, and let creditor's come get their money as it saves on postage. Can add this to the float argument.

I don't worry about CC due dates. I just review the monthly mailed statements and record the payments in my checkbook. I keep $5K more in checking than normal monthly expenses (1st tier EF).



In 2007, I set up Automatic Bill Payment (ABP) plans with all trusted creditors. They ACH out the payment on the due date. (Sometimes a few days after the due date. I could never get away with being "late".)

The monthly paper statements still arrive ~2 weeks before the payment is due, giving plenty of time to check/dispute charges. (No need to logon to check charges. Besides, the USPS needs the work.)

Only remember 3 disputed charges since setting up ABP plans, and all resolved to my satisfaction.



Edit. Forgotten thought.
Last edited by dratkinson on Sun Jul 14, 2013 1:05 pm, edited 1 time in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
astrohip
Posts: 494
Joined: Tue Dec 21, 2010 4:29 pm
Location: Houston TX

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

Post by astrohip »

Add me to the auto-pay group. Every credit card gets paid by auto-draft on the due date. In 10+ years of doing this, with anywhere from 4-6 active cards, I have *never* had an issue. Not once was it not paid. Sure, in the good ol' days we got the float & interest. But just because money has little time value doesn't mean we should change basic procedures that still make sense.

I review every credit card online, once a week on Wednesdays. Look at all the charges and make sure I know what they are. Every once in while I'll find a strange one, but almost always it turns out to be something we bought, but charged under some weird name. But I have found a few fraudulent charges over the years.

So by the time the credit card gets paid/drafted, there are no surprises. Plus by then it's already posted in Quicken, so my bank balance will be accurate.
"Happiness is not about doing, it’s about being." - R Branson
Post Reply