3 Ways Paying Your Bills Early Benefits You

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Want to de-stress your life and save money? Get in the habit of paying bills early.

One of the many tragedies of 2020 was the way stress impacted our daily lives and personal finances. Millions felt the burden of family obligations, work, and financial pressures even more than usual.

And so, in 2021, what if there was a way to take a bit of that stress off, to minimize the time we spend worrying, and perhaps increase the time we spend enjoying life? As ridiculously simple as it sounds, paying bills early could be the answer. Keep reading to learn why.

1. Enhances your reputation

None of us can tell what tomorrow will bring. It could be something rather extraordinary or something scary. Paying your bills early means that you don't have to worry about whether your rent or car payment has been made if you end up in a hospital bed with a broken leg or you're caught out of town in a blizzard.

And let's face it: Paying your bills early also gives you a bit of a halo. Let's say that your rent is due each month on the 10th, but you make sure it's in your landlord's hand by the first day of the month. If you ever need to call your landlord and tell her that you've been kidnapped by a Yeti, she will likely take you at your word because you've earned that "halo" of responsible behavior.

And that halo extends to your reputation on paper. Payment history accounts for 35% of your FICO® Score. Getting in the habit of paying bills early means knowing that your payments will arrive on time each month, a fact that boosts your credit score.

And because we don't know what tomorrow will bring, building a healthy credit score is a smart move. What if you're offered a killer deal on a house in your dream neighborhood, or a chance to go into business with someone you respect? Your reputation (as illustrated through your credit score) enhances your ability to qualify for a mortgage or business loan.

2. Saves money

When it comes to saving money, there are several benefits to paying bills early, including:

  • No late fees -- ever
  • The chance for a higher FICO® Score, which in turns means access to lower interest rates that can save you thousands
  • Special discounts offered to customers willing to pay early. For example, some municipalities provide a discount for property owners who pay their taxes early, and hospitals cut the amount owed on bills paid before they're due.

3. Can boost your credit utilization

A category called "credit utilization" makes up 30% of your FICO® Score. Credit utilization refers to the amount of available credit you're using at any given time.

For example, if you have a credit card with a $10,000 spending limit and have a balance of $5,000, your credit utilization on that card is 50%. Generally, the less available credit you're using, the better for your credit score. While there's no magic number written in stone, a credit utilization ratio below 30% is typically considered acceptable.

Now, here's where paying your bills early each month really pays off. By paying your credit card bills ahead of schedule instead of near the due date, the credit utilization level reported to credit reporting agencies is lower. It works like this:

  • The last day of your billing cycle (also called the "statement closing date") normally hits about 21 days before your payment is due. On the last day of the billing cycle, the creditor calculates how much you owe in interest and what your minimum payment is for the month. That's also the day creditors begin to report to the three major credit bureaus -- Equifax, Experian, and TransUnion.
  • Remember, those credit bureaus look to see how much you owe in relation to your available credit limit. One way to drop your credit utilization level is to get in the habit of making an online payment before the last day of your billing cycle. Check your account online or call customer service to learn when the last day of your billing cycle hits.
  • Let's say the last day of the billing cycle is on the 10th of each month. As long as you keep track of your charges, it's easy to make a payment before the 10th day, thereby reducing the balance that will be reported to the credit bureaus.

It's important to note that any payments you make before the last day of your billing cycle should be considered "extra." That's because they are credited to the previous month. You will still need to make at least a minimum payment on the card once the statement is released to avoid looking as though you skipped that month's payment.

Making two payments -- one to bring the balance down and the other to keep your account current -- pays your debt off faster while also helping to raise your credit score. If you're unable to pay a credit card balance off in full each month, it's the next best move.

While paying early is a big ask if you're living paycheck to paycheck, try it out next time you receive a tax refund, deposit return, or bonus from your job – even if you're only able to cover one or two smaller payments. See how it makes you feel about cleaning a bill off your financial plate earlier than usual. You may just decide that it's right for you.

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