If you don’t pay your bills on time, the consequence might be the termination of your services like electricity or your phone, or your account could end up in collections. Even more costly and nerve-wracking, you could sued. There are more than just financial benefits if you pay your bills on time.
Late fees are the way your creditor receives free money from you. When you pay a late fee, you receive no value in return. late fees can range from a few dollars to $50 or more. Some creditors charge a late fee and add on additional finance charges, which might be calculated as a percentage of the balance owed on the account. Being late on your bill payments means you may pay enough in late fees and finances charges to cover another bill entirely.
Rising Interest Rates
Some lenders include language in their contracts that allow them to raise your interest rate if a payment is late. Some lenders may forgive one – or even a few – late payments, but frequent late payments can result in an increased interest. Rising interest means you pay more over the life of the account or loan. Some credit card companies will raise your interest or alter finance terms even if you miss a single payment.
A drop in your credit score
Some lenders offer a short grace period of seven to 15 days. After that, they may report your account as late to the credit bureaus. Usually lenders report late payments and those that are 30, 60, and 90 days past due. Late payments hurt your credit score and can impact your chances to obtain financing in the future. Late payments on your credit report may also reduce your chance for getting a good interest rate on future loans or accounts.
Aggressive internal collectors
Even if you pay your bills before your accounts go to collections, if you make a late payment, you might have to deal with an internal collector. Internal debt collectors can be as aggressive as collection agencies, calling you several times a day and pressuring you for payment. Sometimes, individuals make payments just to appease such collectors, but that can lead to running behind with other bills and starting the cycle over. Budgeting to pay all your bills on time prevents this from happening.
Loss of account benefits
Some accounts come with benefits, such as interest-free initial periods, cash-back bonuses, or rebates. Some creditors remove benefits from accounts when payments are late. Basically, this means you might lose access to valuable services or rewards.
Life does happen, and there are very good reasons people might run behind on bills. When that occurs, working quickly to resolve the situation can help you reduce the negative impact of paying late.
Once you get in the habit, you can pay your bills on time, every time.