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In the world of credit cards, the saying "time is money" should really be "timing is money," especially when the topic is making payments on time. Once you've opened a new credit card, you need to be certain that you make each and every payment on time, every time. Otherwise, you could end up in a lot more debt than you realize.
Before you put your credit card bills on the back-burner, consider the information below. It may very well change the way you think about paying your credit card balances in the future.
Why On-Time Payments Are So Important
The biggest reason you shouldn't miss a payment due date is so you don't ruin your credit score. No, one late payment won't likely destroy your credit score, but it could drop a few points and it will remain on your credit report for the next seven years. Your payment history also makes up 35% of your total FICO credit score, which is the largest amount of all factors used to determine your credit score or credit worthiness.
Defaulting on your credit card payment even once (by making a payment after the due date) will most likely result in a late payment charge that could be as high as $35 or more. Some credit cards allow a "free pass" for your first missed payment like Discover, but every credit card company has a fee that it charges for consumers who fail to make their payments by the posted due date. It doesn't matter what your reasons are or how late the payment may be. A simple hour can cost you extra if you're not careful.
On top of the late fee, you might also lose your introductory interest rate by making a late payment. That means you will owe more than you originally planned because you are now stuck with the standard rates that apply after the introductory offer ends. You won't be able to use your earned cash back to cover the money owed. Redeeming rewards as a statement credit is allowed, but it will never count towards your monthly payment. That's something you must pay first. Long story short, your credit card will become less and less useful without a proper payment schedule. There may even be some unexpected outcomes from poor money management so it's your responsibility to create and manage your payment schedule.
On-Time Payment Methods
Organization is key to ensuring that your payments are made on time. Most credit cards offer free online account management that allows you to view your account information and status at any time. You can also sign up to have an email sent every time a bill is due. Here are a few ways you can manage your account and avoid late charges:
- Pre-schedule payments. By enrolling in auto-bill pay, you will be able to pre-schedule the minimum amount due that month so you never risk missing your due date. This is a great way to ensure you don't incur any late charges and requires no additional effort on your part.
- Set up autopay. If your financial situation will allow, an even better situation is to set up autopay to pay your balance off, in-full, every month. Both options are usually included in any automatic payment program; however, even though automatic payments can be a great time saver and safety net, you will still want to make sure you review your credit card statements and the balance in your bank account each and every month. An overdraft fee on your bank account can be as high as the amount charged for a late payment, which completely contradicts your efforts in setting up auto bill pay in the first place. Make sure you have a well balanced budget that you follow and update every single month in order to make this work.
- Pay bills on the same day every month. You could set aside a certain day or week of the month to make all your payments. For instance, some people pay all of their bills during the first week of the month – even those that are due at the end. Simply go down a list of your accounts and submit all payments online on the first. Then you have the rest of the month to use any leftover money for other items such as food, gas or savings. No more worrying about whether or not you remembered to pay your Capital One bill or the electric bill because, after the first, you know you're covered!
- Follow a payment plan. One way to manage your budget is by using a simple excel sheet. One column should include the account names, another column should include the amount due, and another column should show the due date. Then set a recurring reminder in your calendar, preferably on your phone's calendar, 5 days before each bill is due and on the actual day the bill is due. That way there are two reminders for you to pay your bill in case you get side tracked or can't make the payment 5 days early. Again, it's all about following and updating your budget plan each and every week. For example, I pay all bills due that paycheck period the first day I get my paycheck. So all bills that are due in the next two weeks are covered. Then when I get paid the second time that month, I pre-pay all bills due over the next two weeks again.
It doesn't have to complicated or expensive to use credit. Simply use common sense. In general, about 50% of your income should go towards your essentials such as rent and food. Another 20% should go towards future planning, such as paying down past debt and making deposits into your savings account. The remaining 30% should go towards lifestyle purchases like clothing, toiletries and other items.
Find a way to put yourself on a schedule that works for you and stick to it. Once you learn the right money management habits, you'll never have to worry about a late payment again.
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