Tuesday, December 4, 2012

Rule #22 Pay your bills on time.. Every Time!

Want to know how to sabotage your finances in the foreseeable future? How's about screwing up your credit rating, while at the same time building up a deadbeat image of yourself?  Yeah, thats one of the worst things you can do.

It's funny how people do silly things that sabotage their financial wellbeing ... and by funny I mean strange.  An example of this is voluntarily harming their credit rating.  When I was in University, one of my roommates didnt have enough money to pay his cable TV bill but that didn't stop him from going out for a few brewskis with the boys.  Here's how one particular discussion went:

Ryan: "Hey man, your bill has been sitting there for a month... you gonna pay that? It was due last week."
Roommate: "I am getting my next instalment of my student loan in 6 weeks and I will pay it off then."
Ryan: "Dude, you cant just miss a payment.  Maybe you shouldn't be goin' out to the pub til you pay your bills."
Roommate: "They'll get their money, as soon as I get mine. I've done it before, no problemo."
Ryan: "That's gonna bite you in the ass someday"

Integrity is one of the traits that was ingrained into me as a kid, and it is one of my most valued traits in other people today.  Integrity to me means you do what you say you are going to do.  Its as simple as that.  And when you borrow money, you pay it back on the terms that you agreed to, or even earlier!  Growing up in my parents house the rule was: You only borrow money you know you can pay back and you ALWAYS pay your bills on time.  You always sacrifice discretionaries before missing a payment.  Always!  That was a given in my childhood household growing up and it is a given in our adult household today.  That includes bills, mortgage payments, loans, credit card payments, handshake loans with family etc...

Beyond having integrity, there is another good reason to pay your bills on time... maintaining a good credit rating!  When I was a teenager my parents taught me about a person's credit rating.  I've known about it and have been maintaining a good one all my life.  A credit rating is a metric used to evaluate your credit worthiness, or your ability and reliability to pay back debt.  Banks and other lending-related organizations share your income and debt history with each other in order to determine how much to lend you, what rate to lend it to you at, and the duration of these terms when and if you can borrow money at all.  The part you can control the most is how much you borrow and how you pay it off.

Let's focus specifically on the paying it back part and why you should care.  Your credit rating will suffer if you dont pay your bills on time... no matter what the reason, and in the end that hurts you more than anyone else the next time you go looking for a mortgage or a new car loan.  If you were buying a car on credit and you could only get the loan's interest rate at 7% while your brother-in-law was getting the same deal only at 5%, simply because you didnt pay your bills on time, you'd be kicking yourself.... or at least you SHOULD be kicking yourself.   Thats money you are leaving on the table.  If you have any money sitting in the bank and you are missing bill payments, you are likely ruining you future finances by acting so irresponsibly.  If your credit rating is the pits, it means higher interest rates that you are required to pay, or it may result in you getting turned down for a loan altogether.  Paying extra at a later month doesn't make up for missing a payment either, as some people I've talked to seem to believe.  If you ever want to borrow money in the near or distant future, the lender will absolutely be checking your credit rating first, so always keep that in mind when those current loan statements and bills come in the mail.

Come Hell or high water, we never miss a bill payment, we always pay our bills on time. Always.  As a result, we've never been turned down for credit when we've asked for it. and we get good interest rates on the loans that we do have.

1 comment:

  1. I agree, Ryan. It’s called financial responsibility. If you’re financially responsible and keep a good credit rating, it will be easy to get a loan when you really need one. It will also give a good impression on potential employers when you’re looking for a job. Plus, not paying your bills on time will mean late charges, so that will add up to your expenses.

    Neil Dando