How to Avoid Late Fees

 You’re pretty good at sticking to your budget ... except when unexpected bills come along.

Unplanned bills are sometimes unavoidable: your car breaks down, your roof starts leaking, your refrigerator breaks. But other times, these unexpected bills come in the form avoidable fees.

For example, you might get hit with a late fee, plus interest charges, for accidentally paying your credit card bill five days late -- not because you didn’t have the money, but simply because you forgot to send in the payment.

Or you get hit with an overdraft fee for accidentally writing a check that was just a little bit more than the amount you had in your account. Again, this wasn’t due to any deep-seated trouble. It was just an oversight. Maybe a paycheck didn’t clear on time, or you forgot to check your balance.

Or your landlord charges you a late fee because your rent is three days late. You had the money to pay rent – but you were out-of-town at the beginning of the month. It took a few days for your check to arrive in the mail.

These unexpected late fees can derail even the best-laid budget. They can also cost you dozens, if not hundreds, of extra dollars every year.

How can you avoid these late fees? Here are three tips:

1. Automate it

Automate as much of your bill paying as possible. The fewer bills you need to manually pay, the better.

Your first step should be setting your credit cards for automatic payment from your checking account every month.

Ideally you should pay the balance in full. If you’re unable to do so, set up automatic minimum payments. You’ll be charged interest, but won’t have to worry about late fees or damage to your credit.

Second, if you’re a homeowner, set your mortgage to auto pay every month. If you're a renter, ask your landlord if you can electronically submit your payment every month.

Suggest an automatic monthly transfer from your checking account to your landlord’s checking account, or ask your landlord if he or she would be willing to look into a free system like Cozy, which facilitates automatic rent payments.

If you pay estimated quarterly taxes, pre-schedule these payments up to a year in advance. You’ll no longer have to worry about writing a check the day before your quarterly taxes are due.

Go through all of your bills and see how many of them can be hooked up to auto-pay. Utility bills, insurance payments, memberships, etc. are good targets.  

2. Set Reminders

If there are any bills you can’t auto-pay, set a reminder in whatever calendar you use most often. For example, if you use the calendar on your phone, create a recurring event within the calendar that reminds you to manually pay a particular bill.

You can configure the calendar to repeat this event periodically, such as weekly, bi-weekly, monthly, annually, and so forth.

Worried about missing a reminder? Set your calendar to email you in advance of the due date.

3. Leave a Buffer in Your Account

Leave a buffer of about one month’s worth of expenses in the checking account you use to auto-pay most of your bills.

Think of this cash cushion as a form of self-insurance. It buffers you from the possibility of bouncing a check, getting hit with overdraft fees, or getting penalized for insufficient funds. If a particular bill is larger than expected, or if a paycheck gets delayed for any reason, you won’t be caught in a bind.

This cash cushion shouldn’t function as your emergency fund. It’s just a little safety net kept in your checking account to safeguard you against extra fees. Your main emergency fund should be kept in a high yield savings account so it can earn slightly better interest.

Say Good Bye to Unnecessary Fees

If you're currently spending $100 a year on late fees, eliminating these fees could save you $1,000 over a decade. That’s a nice chunk of change you can use to take a vacation, fix your car, or replace an outdated appliance.

By automating your payments, setting recurring calendar reminders for manual payments, and leaving a buffer within your checking account, you can insulate yourself from the risk of late payments and overdraft fees.