When is the best time to pay bills? Before or after pay day?

alexsheehan

Hello

I don't know if this topic has been covered previously or not, I've tried doing a search but cannot find anything related to it (please tell me if I am wrong!).

I was just wondering if there is a particularly bad/good time to pay your monthly bills;-

For someone who seems to be in a constant state of flux with my overdraft, I just wanted to know if anyone has any ponderings regarding whether it is better to pay all your bills just before you get paid (i.e. therefore going into the agreed overdraft for the briefest of moments and incurring the least amount of overdraft charges), or paying all your bills just after you get paid (therefore having enough money in your account to cover all your initial bills, then maybe going into your overdraft for a few days before pay day)?

We have an agreed overdraft limit of £2000 with our bank. Before pay day, my wife and I were (roughly) -£500 into this and had been into the overdraft for about 2 weeks. Our bank Halifax charges £1 per day for going into this agreed overdraft so we will incur a charge of £14 for the privilege. It is my theory that we would be better off paying all our bills the day before pay day and thus, although we would be HEAVILY into our overdraft, it would just be for the briefest of moments (one day hopefully) and therefore the charges applied would be less, saving us money.

Does anyone use this strategy already? Am I being completely stupid and missing something really obvious as to why this wouldn't work?

I know I could simply try it and see, but I was hoping someone will have already tried this method and will be able to give me some advice on whether it has worked or not, or indeed tell me if I am being a complete imbecile and that I am missing some simple, vital details!

I want to just try it and see, but I really don't want to if I am being a complete gimboid.

I know some people will say that the best thing would be to make sure that we do not EVER go into our overdraft at all, however, life is never that perfect and we regularly dip into the overdraft now and again due to events beyond our control.

Thanks

Alex

InsideInsurance

In part it would depend on your terms of charges.

Generally I think the best strategy is to clear the bills on payday and then you know exactly how much you have to spend for the rest of the month and so you dont go into your overdraft as if you have no money left you stop buying.

psychic_teabag

alexsheehan wrote: »

We have an agreed overdraft limit of £2000 with our bank. Before pay day, my wife and I were (roughly) -£500 into this and had been into the overdraft for about 2 weeks. Our bank Halifax charges £1 per day for going into this agreed overdraft so we will incur a charge of £14 for the privilege. It is my theory that we would be better off paying all our bills the day before pay day and thus, although we would be HEAVILY into our overdraft, it would just be for the briefest of moments (one day hopefully) and therefore the charges applied would be less, saving us money.

I can't think why you'd be HEAVILY into your overdraft if you pay your bills just before payday. You should end up the same amount overdrawn, but (as you say) for a shorter period. (So you should be less overdrawn since you've paid less in fees.)

My first reaction was that it's better to delay the bills as long as possible, to keep the money in your account for as long as possible.

Two ways to look at this, though... are you paying your bills 30 days later (just before next payday), or one day earlier (just before payday) ? The former sounds sensible, since you keep the money for longer. The latter is clearly silly (you incur a fee for no good reason).

So you need to be clear which month's bills it is that you're paying. For monthly payments (utilities, etc), once you reach equilibrium, it's hard to distinguish which of those two scenarios you are really in.

sorcerer

It's never a good idea to pay your bill on the day you are paid, what happens if you don't get paid because of a fault. They you get lots of charges. I try to make sure my bills are paid at least a few days after.

alexsheehan

Thanks InsideInsurance, you make a very good point!

Just as a "what if" scenario though, we generally budget well, apart from the odd hiccup every few months (cue cries of "if you budgeted well, you wouldn't be in your overdraft all the time would you !?"). But what if we are in our overdraft for a while, and it takes us a few months to claw our way back out? Just so you know, we generally do spend very conservatively and usually wait until the end of the month, just before we get paid, before we spend anything on ourselves.

Financially, which way would it work out better to pay the bills? Pre or post pay?

opinions4u

1) Get paid.
2) Send money to cover bills plus 10% to another current account.
3) Pay all bills out of that other account.
4) Never care about the date as I never touch that account for anything else, other than a reconciliation of statement to bills and withdrawal of excess cash at Christmas.

InsideInsurance

It depends on the terms of your overdraft and how well you can control your bill payment dates -v- salary date etc.

Some overdafts are charged on a per day basis in which case the important element is when you trip into it where as others are based on an APR in which case it is when and how much you go over.

alexsheehan

psychic_teabag wrote: »

I can't think why you'd be HEAVILY into your overdraft if you pay your bills just before payday. You should end up the same amount overdrawn, but (as you say) for a shorter period. (So you should be less overdrawn since you've paid less in fees.)

My first reaction was that it's better to delay the bills as long as possible, to keep the money in your account for as long as possible.

Two ways to look at this, though... are you paying your bills 30 days later (just before next payday), or one day earlier (just before payday) ? The former sounds sensible, since you keep the money for longer. The latter is clearly silly (you incur a fee for no good reason).

So you need to be clear which month's bills it is that you're paying. For monthly payments (utilities, etc), once you reach equilibrium, it's hard to distinguish which of those two scenarios you are really in.

Thanks Psychic Teabag, you also make very valid points! I was just being overly assumptive with my HEAVILY statement! I bow to your supreme knowledge! I cower before thee!

Basically we have all our direct debits set to go out at the beginning of the following month AFTER we get paid. We get paid on 25th of every month, so my thoughts would be that if we had initially set up our Direct Debits with the relevant companies to go out before pay day (essentially bringing all the Direct Debits forward by just a few days), then then would work out better, but as I said, I may just be being a complete idiot for thinking this!

psychic_teabag

For current accounts paying no interest, there's always a conflict between keeping the balance high enough to cover the bills, but low enough to not lose out on interest.

Nice thing about Lloyds vantage and Santander 123 accounts (and perhaps others) is that they pays savings-account levels of interest (once you reach balance threshold). So you can keep your savings (eg emergency fund) in there as a float to guard against going overdrawn / late salary.

Probably doesn't help you much, though.

If you are stuck in overdraft, I guess it makes sense to do whatever you can to minimise the number of days you spend underwater. Which could mean deferring paying bills, etc.

Can you use a 0%-purchase credit card to help you get out of the temporary hole? Bad idea unless you are disciplined enough to not go crazy and overspend. (My OH keeps ticking me off when I declare it to be "free money" when we spend on our 0% card, but we both know I'm joking.)

InsideInsurance

psychic_teabag wrote: »

If you are stuck in overdraft, I guess it makes sense to do whatever you can to minimise the number of days you spend underwater. Which could mean deferring paying bills, etc.

That would assume you are paying a per day flat fee.

Depending on percentages etc if you were on an APR then being a week with a low overdraft and one or two days at the end with high (so say 8 days in total) could incur a less charges (interest) than a high overdraft for 5 days

meer53

Why not open an account that doesn't charge a daily fee ?