The High Price of Paying Late - How We Are Saving Money by Paying Early

The last few years have been financially difficult for my family. We've survived a job loss, unexpectedly high medical bills, and rising costs for basic necessities. As part of trying to get back on our feet financially, we've taken steps to cut our expenses, and create a realistic budget so that we can start rebuilding our savings and pay down our debt. Every few months, we take time to sit down and review our accounts and budget, to see if we can find additional ways to save. 

At the start of this year, I took a look back at how much paying some of our bills late last year cost us, and I was shocked. I discovered that we paid over $1,000 in 2013 for late fees that could have been avoided with better planning.

How Did So Many "Little" Late Fees Add Up to Such a Large Sum 
It really does seem impossible that a few late charges each month, as well as a few returned check fees, can add up to such a large sum, but it did. Where did all of these charges come from? Contrary to what you might expect, our credit card debt had nothing to do with these exorbitant fees. Even though we were financially struggling last year, I was careful to pay the minimum payment for all of our credit cards on time, so that we wouldn't incur late charges, as well as suffer an additional blow to our credit report. In fact, we've taken steps to significantly reduce the amount of our credit card debt, and are working to pay them off completely. While our family didn't have any late fees from our credit cards last year, according to Mental Floss, Americans spent $18 billion dollars on credit card late fees in 2011.

Paying Late is Costly, Even if the Delinquency Doesn't Appear on Your Credit Report

While many utilities report late payments to the credit bureaus, ours don't. So, on the months when we were having difficulty putting gas in the car to go to work, or some unexpected expense would come up, I would be a few days to a week or so late on paying for things like our phone bill, electric bill, water bill, auto insurance and so forth. Most of these entities charged us an additional 10 to 25% each time we were one or more days late. We also have several medical bills that we make payments on, but sometimes those have been late as well, and, they would also charge a late payment fee. Believe it or not, those charges can add up quickly, but these charges were less than half of the amount that we spent last year in late charges.

The Dark Side to Using a Debit Card - Hidden Charges, Overdrafts and Other Fees

In an effort to reduce our debt, we pay for most things with our debit card, which is connected to our checking account. So, when the card is swiped, the money comes directly out of the account. One would think that if you don't have any money in the account, or go over the limit, that the transaction would be declined, Sadly, with our bank, as is the case with many other financial institutions, that isn't always the case.

One painful financial lesson that we learned from last year is that some retailers, such as gas stations, only put a temporary hold or authorization on the account for $1. It can take several days for the actual amount to post to the account. If you forget what you've charged at such a retailer, and you have other payments that you've made, it's possible for your account to become overdrawn even though you have funds in the account at the time of the transaction.

Our bank goes ahead and pays the retailer, so there isn't a declined check fee with the retailer, but the bank charges us $35 each time that this happens, just as though we had written a physical check with insufficient funds on the account. These overdraft charges add up rather quickly.

We also incurred several ATM charges for using this debit card at ATMs that were not connected with our bank, or using it to get cash back during purchases at some retailers just because we thought it was a bit more "convenient" than driving to a branch of our bank at the time. According to Bankrate, we aren't the only ones that do this, as Americans wasted a total of 7 billion dollars in ATM fees in 2010 alone!

Adding it All Up 
Counting late fees for paying late on our utilities, medical bills, and auto insurance, as well as these overdraft charges, we paid out an additional $1,103.87 in 2013 that we could have avoided with a bit of better planning and by having a savings fund tied to the checking account as overdraft protection. When we reviewed our accounts and discovered how much we had literally wasted, it made us sick. As difficult as the past few years have been financially, that was a huge sum that could have been spent on paying down more of our debt, or boosting our savings fund.

Refining Budget Categories, Alerts, and Reviewing Accounts Frequently Can Save the Day 
While we have a spreadsheet where we record all of our income and expenses, and we review our budget every few months, we didn't discover the true cost of being late until we tried a free budgeting program that we found online. This particular program has several sets of categories for expenses, and it automatically tracks and categorizes all of your transactions from all of your accounts. It was only looking back over the course of the year with this software that we could see a complete breakdown of our late fees and charges for the year.

Now that we are aware of this issue, we are taking steps to review all of our accounts more frequently as well as take a more in-depth look at where our money is actually going. The particular software that we are using also has the ability to email and text us when we are exceeding our budget limits for specific categories, so hopefully we discover issues in our budget more quickly, before they add up to such a large sum.

We are also taking steps to further increase our savings so that we have a greater cushion in our budget for those unexpected expenses that seem to crop up all of the time so that we aren't "robbing Peter to pay Paul," and paying some of our bills late. Even if a late payment for a particular bill isn't reported to a credit bureau, we've learned that it can still be costly in fees, so it pays to be early rather than late.

Best Money Tips I Learned From My Depression Era Grandparents

I was lucky as a teenager. For several years I had the opportunity to live with my father's parents, who survived the Great Depression. Living with them, I had the opportunity to learn many things that have helped make my adult life easier and more productive. 

The following are the top 3 best money lessons that I've learned from my Great Depression era grandparents.

Don't Spend Money You Don't Already Have

My grandparents avoided acquiring debt as though it was an actual, physical, visible disease such as the plague or leprosy. My grandparents were teenagers in rural Appalachia when the Great Depression began. They saw many of their family and friends loose everything they had and be forced into bankruptcy when they could no longer make their payments when they lost their jobs. So, my grandparents were strongly against going into debt for anything, and they were quite vocal about their opinion. One of their constant refrains from my childhood was, "don't spend money you don't already have."

In high school, most of my friends were driving cars that their parents had happily co-signed loans for and hanging out at the area mall on the weekends going shopping with their mom and her credit card. In stark contrast, I was lucky if I was allowed to drive my grandmother into town on Saturdays in the old farm truck to pick up a few necessities: toilet paper, tea, coffee, flour and sugar. Yes, at times I did feel bad, awkward, and out of place for not getting to wear the latest fads or getting to hang out with my friends wasting money. I even got teased a bit, but it also forced me, at an early age, to grow a bit thicker skin and learn who my real friends were and were not. These lessons in resiliency and breaking away from the pack have served me just as well as adult as the money lesson that I learned from their example.

Of course, I didn't follow my grandparent's example to the letter once I became an adult and moved out on my own. I did end up obtaining and using a few credit cards when I left home. I even got in a bit over my head with them by using them to pay for medical expenses. Because of grandparents' example, however, I never acquired the habit of using credit cards to just "shop" and put things like clothes, jewelry or even vacations on credit. I am very thankful for this money lesson. If it had not been for their example, I probably would have been more like my friends, and charged my cards with frivolous things like so many others still do. Then, I would have been in even more debt and been forced to file bankruptcy when I lost my job in the "Great Recession."

What You Have Saved Matters More than What You Have

As an adult, I've found that my grandmother's old saying of "what you have saved matters more than what you have," is very true. In fact, I've found that making a point to save, rather than spend, and creating a realistic budget that enables me to build an emergency savings fund, has been the key to getting my financial house in order after my job loss. Without savings, it's impossible to avoid debt, and it is impossible to save if you are more concerned with spending and consuming rather than saving.

Reduce, Reuse, Re-purpose, Recycle 
Having successfully survived the Great Depression, I think my grandparents and people of their generation were actually the first true conservationists and were "green" well before the buzz words associated with sustainable living became popular. In addition to avoiding debt, and not treating the act of buying or consumption as an activity, my grandparents bought very few items new.

Both of my grandparents were inventive and practical. They were constantly tinkering with things to either fix something themselves or to turn it into something else that could be reused in another way. They bought well made items used when they could. This saved them thousands of dollars over the years, and has saved me a great deal of money as well.

When I could no longer fix my appliances, I followed their example. I ended up turning to sites such as Craigslist and Freecycle to buy a used, but working, refrigerator, stove, washing machine and dryer that saved me hundreds of dollars on each appliance. Together, I spent less than $200 on all four of these items. This is hundreds of dollars less than what just one of these appliances would have cost new at a traditional home improvement store. I also do things like reuse empty containers for other purposes, swap out unwanted clothing with family and friends, and change my own oil and make many of my own repairs and alterations based on their example.

By learning and applying these top 3 best money lessons from my depression era grandparents, I've been able to avoid debt, reduce my spending, increase my savings and survive my own generation's widespread financial crisis that many have called, The Great Recession. I hope others will learn and profit from their example.

I love receiving feedback from my readers! Let me know in the comments section below if you have any tips from the Great Depression era that have helped you weather your own financial difficulties.