Is it prudent to PAY YOUR BILLS now or near the due date?

Here’s a question for you.

When you get your bills, what do you do? Do you:

  1. Pay them off immediately
  2. Pay a few days later
  3. Pay them off close to the due date
  4. Pay them way past the due dates
  5. What? Bills? Should I pay them at all? 😛

Obviously options 4 and 5 should not be contemplated at all.

As for me, I have opted for option number 3.

Why Nadlique? Shouldn’t we pay our bills ASAP?

Well, here’s my rationale.

Money for bills is as good as a loss don’t you agree? It’s a sum of money that needs to be spent either way. There’s no going around that.

So, why not at least make some money off them?

What do I mean by that? Here’s an example:

Say I received my mobile phone bill on the 1st of April and the bill is due on the 2nd of May. The amount that needs to be paid is $100.00.

Now, instead of paying them off immediately, I’d defer the payment right till the end. i.e. somewhat near the 2nd of May. Why? Well, if you think about it, that $100.00 can be used to earn you some interests.

Assume the savings account interest rate is 12% p.a. Deferring the payment by 1 month will earn you, give or take, approximately $1.00. (12% X $100 / 12 months). If I had paid the the bill early, I would be foregoing the 1 month worth of interests.

Also, effectively, you have now given yourself a discount. If you take the $1 worth of interests into consideration, you only need to cough up $99 to pay the bill.

$1 might not seem like much but it does add up as you go along. Also, imagine if you’re a company that has bills worth thousands or millions of dollars?

Based on the assumptions above, if you had a $1,000,000 bill that needs to be paid, deferring by one month would approximately give you back $10,000.

Please take note that to make this little strategy be worthwhile, you need to be:

1. Very organised. You need to remember that there are bills to be paid and need to know the due date of each. Forgetting to pay can result into the strategy backfiring. Instead of earning interest, you are now slammed with late-payment penalty fees.

2. Make sure the payment is received by them by the due date. i.e. if it is due on the 2nd of May, make sure the company receives it by 2nd of May. There’s a big difference in paying in person on the due date and posting a cheque on the due date. Remember, cheques posted may need a few days to arrive and clear. Again, this is to avoid from getting the late-payment penalty fee.

So, there you go 🙂

P.S. I’m using the term interests loosely here in this article. It may refer to both the conventional banking’s interests or Islamic banking equivalent.

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Disclaimer: This article is not a specific nor general advice on managing or investing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.

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About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. wahh..nice article..ur really good in things like this eh ?

    how are u anyways? i’m going broke now..design uses wayyyy too much money..i wrote out all my spendings so tat i know wat i spend on..sigh2..

  2. It’s imposible for me to receive 1 million bills. But If I do, I will ask my personal financial assistant to do this. It’s a little bit technical for me.

  3. @Irdzra

    Hehe 🙂

    I’m fine, thanks. University is getting really hectic. Assessments starting to pile up, and I am in dire need to catch up on my reading. Always like that every single semester. Leave all to the last minute!

    I used to write what I spent on too, but I was just too lazy to follow up! 😛

    @Tabuxander

    Not so impossible if you own a company. A huge company perhaps that owns a few humongous buildings.

    If you own a huge house though, it may be possible to have bills that goes way past the thousand dollar mark.

  4. the other thing that a friend taught me was to have different due dates for your credit cards.. so that you could maximise the amount of time before repayment is due! 🙂

  5. Hmm, good tip!

    Also, I think that applies to other things as well. Mainly annual payments. For example, insurance, car servicing, road tax, and etc. Spread them all through the year so that you are not forced to pay them all in one go (which can be rather painful).

    Anyway, thanks for sharing! 🙂

  6. Salam Nadlique, My first time commenting in ur blog. Nice job! Anyway mind if I write down some tips to share with ur readers? 1) If you and ur spouse hv your own credit card, do consolidate under one card holder ie your spouse as supplementary holder. That way you will accumulate higher points faster! 2) If you need to hv more than 1 card, try to have different statement dates for each cards. Eg: Card A statement is on 15th of each mth while Card B is on 28th. Use card A from 16th onwards till 28th then use card B from 29th till 15th. Hope it helps!

  7. Salam roy.

    Nope, I don’t mind at all. Do share as many tips as possible 🙂

  8. This is a very unislamic suggestion … If you delay paying your bill, you may be saving $1.00 interest, but your creditor is probably having to pay $2.00 interest for goods and or services already rendered. This will have one of two consequences, the creditor will have to absorb the cost, or the creditor will simply pass the extra cost on to all future debtors (and that includes you).

    Additionally if it is a mortgage and you are charged daily interest, then it makes sense to make the payments early as the interest on the mortgage reduces with each payment. But the longer you delay, the more interest that will accrue and have to be paid off. For those of “Islamic sensibilities” who dislike the notion of interest, replace the word “interest” with profit and add 10%-20% for the extra cost of “profit”.

  9. Unislamic? When you receive a bill, you are given a due date. So, what you’re saying is, receiving the bill on the 1st of April and paying it on the 30th April (assume 30th is the due date) is unislamic?

    You are supposed to pay by the due date. I don’t understand which part of paying on the due date itself is unislamic. Not paying your bills altogether, yes, unislamic. But delaying your bill until the due date, no.

    This article above is referring to bills (i.e. mobile phone bills, phone bills, electricity bills, and water bills). I am not addressing issues related to mortgage. Plus, I don’t think that mortgage repayments or loans constitute as bills. Also, there is no such thing as interests being charged to you if you delay your bill payments until the due date (though of course, if you pay way past the due date, you may be slapped with some late fees).

    In addition to that, the person who issues us the bills (i.e. phone companies, and etc.), they are not our creditors. They do not loan us money. They are our service providers. They are in the business of providing us a service in which we must then pay them for that service. They then issue you a bill in which it must be paid by a certain date.

    Again in my article, by earning interest, what I meant was, rather than paying on the 1st of April (assume the bill issue date) itself, a person might hold off that sum of money, leave it in the bank for a while, earn some interest, and then pay them bills off a bit later, making sure the service provider RECEIVES the money by the due date.

    “…the creditor will have to absorb the cost, or the creditor will simply pass the extra cost on to all future debtors (and that includes you).”

    Then what’s the point of a due date? Why would a company gives a person a due date in the first place if they had not thought about the prospect of people not paying on the bill issue date itself?

    When a company issues a bill and give 1 month of window for the customer to settle that bill, that means, the company is well aware of the fact that the customer might be paying on the last day and they are comfortable with that as long as monies are received within that time period.

    They won’t issue a bill, and say “Oh crap, what if these folks pay on the last day? Will my business be able to withstand this?”. If this was the case, they would instead issue a bill stating “This bill must be paid within 24 hours or you will be charged interests or late penalty charges.”

    I still don’t understand which part of deferring your bills until the due date is unislamic.

    Again I must add, the word “INTERESTS” being used in the article is interchangeable. It may refer to the conventional banking’s INTERESTS or the Islamic banking’s PROFITS.

    By the way, for those who might not know, issue date means the date the bill was issued. The due date means the date the bill is due to be paid.

  10. Something to add as an example.

    John fixed my leaking fish pond (providing a service) on the 1st of April. After completion, he said to me “Nadlique, your pond is done. Here’s the bill. You need to settle the payment by 7th of April.

    I then paid to him in person on the 7th April.

    I did adhere to the terms and conditions provided by John in which to make sure he receives the money by 7th of April.

    As far as I know, there’s nothing unislamic about that.

    If John couldn’t afford being paid a bit later, he would have insisted on the payment being hand over right away, true?

    If John requested the payment to be made by the 7th but I delayed until the 10th, then for sure that’s unislamic.

  11. YES! I paid it only when it is due. Why? Well, Nadlique has said it all.

    Let’s me share some of my way of making sure the money payment is even further delayed – for eg, if the Card is due on 13 April and the cut off date of the statement is on 24 March. So If I pay with my card on 23/24 March, likelihood it will only be shown on the next statment, and the due date would be 13 May. I have few cards with me, so whenever I need to pay with them, I will try to choose the one which closer to the statement cut off date. Of course by doing that, I have not able to accumulate good points with one card…but really, who cares about the reward points.

    Huh….think of it, why are we making life so complicated with little saving here and there? No choice, from Financial background…simply too money-sensitive!

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