Bill Smoothing/Over-paying Bills
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Have you considered overpaying your bills? Sometimes people call this 'bill smoothing'. This is where you round up your payment each time, in order to always be in credit. Many people swear it's the greatest thing, and many companies also encourage it. Is it all roses? With pretty much everything financial, there is no such thing as one-size-fits-all, HOWEVER today I'm going to discuss some pros and cons of this method to set you on your way to deciding if this is for you or not (you might be surprised!) PRO Being overpaid on a bill means that you won't feel a spike as much This is very true. If a bill increases (eg. you're hit with the annual Fire Services Property Levy) you won't feel it if it's simply absorbed into the credit you have built up. Even if the bill is quite high, you may not particularly notice it depending on how far ahead you are. CON You can be lulled into a false sense of security You may think that paying the same amount every month or so gives you stability and will always cover your bill... and you might stop reading them properly. This means you might miss a large bill and receive a late payment fee, or you might miss an incorrect charge that shouldn't be there. PRO You won't get overdue fees because you're in credit If you're always in credit, you can take advantage of all the discounts available for "pay on time" customers... like you! CON You can still get overdue fees even when you're in credit It sounds completely backwards, but I can't tell you the number of people I have spoken with who still get overdue fees on accounts in credit. You will have to phone the company each time and get them to fix it. I haven't heard this happens as much with people that pay their bills as they come (have you?). PRO If you don't trust yourself with money, it's better not to have access to it Do you feel you have a 'need' to spend money as soon as it's available? Then making it inaccessible is a great way to keep your lights on and your water hot. You might have a problem with gambling, shopping, or something else. This is a great one for you. CON You may find it more difficult to switch providers for a better deal I recently heard of an offer that includes AFL tickets as part of the switching over deal to this company. If you love AFL, you might want to switch immediately, but how do you get the $ back off the other company? You'll generally need to use up your credit before switching. This is a little off topic, but just two weeks ago we saw Sam Henderson, an advisor on Sky News and a writer for Fairfax, sued for a multitude of things. For example, "his advice to one client was so bad it would have immediately triggered a $500,000 loss to her super fund." The client conceded she blindly trusted Sam because of his celebrity, but you have to ask yourself, 'would he have done the same thing if it were his money?' Almost no-one will look after your money the way you would. Whether you choose to overpay or not, the important thing is to always stay involved.
Speak soon, Erika Gilbert
My Income Organiser