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Saturday, July 18, 2009

Another Use of the Emergency Fund: Credit Card Prepayment

Has everyone noticed that your grace period before a credit card payment is due is getting shorter and shorter. I try to pay my bills the day I get them to avoid problems. I have heard all sorts of stories to the effect that, if your payment is due on the 15th, it must be checked in by 9 a.m. If the payment arrives later in the day, too bad. These companies are not your friends.

For some reason, my vacations always begin about a day before my bills show up. Therefore, I am always nervous about getting that payment in. Many companies charge for phone payments, so I continue to write checks from my money market account, where my emergency fund resides. A few years ago, I had the idea of paying what I estimated my bill would be (plus more) before I left: prepaying.

This caused a bit of distress because money market accounts were paying some interest then--like 5%. Now that they are paying almost nothing, even that bit of distress is gone. More important, the stress is gone!

And, how pleasant to get a bill that says your amount due is 0 or that you have a credit. Rather than paying for your vacation afterwards, you can pay for it a bit in advance.

This is another area where I am thankful for my emergency fund, one of the best stress relievers entirely within your control.

Any other nifty uses for the emergency fund, folks?


Funny about Money said...

Hmmm... I set aside a specific amount to pay credit card charges each month. The credit union automatically transfers it into a money market account on the first of the month. So if I wanted to prepay, that's what I'd use, rather than the emergency fund.

Occasionally (like this month, for example), I do use my short-term savings to cover credit-card bills when I've spent more than the amount budgeted. I'm so averse to paying finance charges that I'll cheerfully use emergency funds to avoid it.

Suzy said...

I always pay online and usually do so at work while I'm waiting for something to finish. What frustrates me with mine is that even if I know $300 will show up soon I can't go ahead and pay it..the 2 cards I use the most won't allow a scheduled payment that's more than the current balance and one is only one payment every 3 days. I try to log on every few days or at least weekly because my goal this year is to avoid carrying a balance. I also use a credit union where the savings is linked to the checking like overdraft in a way. I keep a set amount there for 'emergencies' and I consider a credit card payment an emergency even if what I charged wasn't(and I give myself a mental slap on the hand for it!) and put it back the next check or at least within the month. Of course I'm pretty much never without access to a computer or internet..even on the trip I made to Arkansas a few months ago the hotel had a computer in the lobby(of course a but riskier to use it since it's public but I would've if I'd needed to make a payment). I think my credit union has bill pay as well though not sure how far in advance I can set them up since I've never used it.

Duchesse said...

Always pay my Visa bill before it arrives; I go to a bank machine or online immediately after charging. Occasionally, while traveling I run up a credit balance on the Visa and use it like a debit card. Have never paid interest.

Duchesse said...

PS. I don't think of it as "prepaying", just as paying. My thinking is, I spent the money when I handed over the card. When I talk to friends who got in trouble with cards, they kept saying the spending wasn't 'real' till the bill came and they so often forgot what they charged. So I changed the mental model. I have an irrational and idiosyncratic refusal of paying card interest.

Funny about Money said...

Duchess just put her finger on how people quickly get over their heads on credit cards. "Not real" till the bill comes! Frightening.

I keep a running tab in Excel into which I enter charges no less frequently than once a week. Each charge is entered as a negative number against the amount budgeted, so that the balance shows how much is left to spend on credit cards at any given time.

Isn't it interesting that Suzy's credit-card lenders limit the number of payments you can make over a period. Clearly, this is a strategy to discourage people from paying as they go.

Before I learned how to use Excel and Quicken, I used to write a check for each charge, enter it into my checkbook, figure the balance so I would not overcharge, and then mail the whole batch of checks when the bill came. This, of course, was wasteful and risky (to say nothing of eccentric). But it worked: I never charged more than I could afford to pay. Also, when you have to write out a check for every charge you rack up, it tends to cause you to make fewer charges.

Amazingly, a CSR at one of those banks remarked that quite a few people would do that.

Duchesse said...

Suzy says "the 2 cards I use the most won't allow a scheduled payment that's more than the current balance and one is only one payment every 3 days." This amazed me, here in Canada I don't know of products like this (and they seem very customer unfriendly.) My Visa card has no limit on payments. I can even run a credit balance and use it like a debit card.

Suzy said...

I don't think they limit the total number of payments but once I tried to add another payment when I had one already scheduled and a message popped up that I couldn't schedule more than one payment in a three day period. Another time I knew another $50 or so was going to post and wanted to include that in the scheduled payment(it was scheduled for about a week away to hit after that paycheck) and it told me I couldn't schedule more than the current balance. It takes some work to keep on top of it (don't want to pay interest or get over my head on the cards) but I wanted to boost my credit score by using credit(I was doing debit only for about 4 months this year) and I found out Discover gives cashback that's slowly but surely adding up to a nice chunk of change. Some places wont' take Discover so I use another card that earns giftcards for a bookstore. Since I use it so infrequently it'll probably take 20 years to get a card LOL!

Frugal Scholar said...

@Funny--You are so much more organized than I am in this.

@Suzy--As others have said, this sounds very consumer unfriendly.

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