Confession: I pay installment fees

July 7, 2009 · 14 comments

Yup, that’s right. I knowingly throw away $5 a month in installment fees. I pay my car insurance with my credit card, and every time I do, I get hit with the stupid installment fee. The fee is lame and I have options to avoid paying it, but I don’t. I know, WTF?!

Here are three ways I can eliminate or reduce paying these installment fees.

1) Pay the balance in full on my credit card. This method means I pay the remaining $573 balance today, get dinged with one more $5 installment fee for using my credit card, and then not have to pay again until my policy renews.

2) Make a few larger than minimum payments. My rate is $119 a month so I could make two $290 payments so I don’t have such a large chunk taken out of my savings at one time. It would reduce the overall amount installment fees that I paid over the course of a year.

3) Set up an Electronic Funds Transfer (EFT) through my checking account. It’s a really cool idea. My insurance company will pull the $119 from my checking account each month without me having to do anything. You basically give permission for them to access your account and withdraw the payment. There are no installment fees because they are pretty much guaranteed their money and they don’t get a two percent fee from the credit card companies.

The third option is clearly the smartest financially speaking. It would save me $60 a year and allow me to keep a maximum amount of cash on hand, since I wouldn’t have to pay the balance in full. But, I’m really weird because I hate EFTs. I only use them for my student loan payments (because it lowers my overall interest rate). I just feel uneasy about allowing people access to my checking account. There is security in knowing I make the payment when I want and not having to trust the electronic gods with my payment.

This is definitely PERSONAL finance, so I’m trying to weigh how much I want to be personal with how much I want to be finance. I will probably end up setting up the EFT, even though it’s not my preferred payment method. In this dual, finances trump personal preference. Does anyone have any EFT horror stories? Is $60 an okay amount of money to “throw away” if it calms my nerves a little bit? Blah, I guess I should be happy that a $5 installment fee is my biggest financial concern right now.

*This arcticle was featured in this weeks Carnival of Personal Finance hosted by Man vs Debt found here *

{ 14 comments }

1 Frugal Urbanite

I wouldn't recommend an EFT for something that you may wish to cancel later. It can become quite the epic battle to get them to stop taking money out of your account, even after everything is supposedly canceled.

Not to mention that the EFT gods are fickle. Mr had problems with a loan when someone on the other end mistyped a routing number.

2 Kunsthure

I set up the EFT because I auto-pay pretty much everything now. I've never had a problem with an EFT. However, I have paid the installment fees in the past because I don't have the cash on hand to pay the full balance. The extra $5 a month is less than the interest I'd pay if I put it on a credit card.

3 Donnie

My preference is to pay using online billpay. All the good things of the EFT, but I'm in control of when it goes out. Of course this does mean getting hit with the install fee.

What I would recommend: If you can, pay the full amount off. Then, start a separate account, and pay into it each month so that when the renewal comes around, you have the full payment sitting there in your account. Then repeat.

4 Jesse

My insurance company, and a few other bills I pay actually give me a discount for using an automatic checking draft or EFT type method to pay me bills. I am a techie and all my bills (as well as anything else I can) are automatic. Plus because of the discount, I am saving about $15 a month (insurance and other bill discounts combined)

5 MoneyFunk

Ya, I don't like EFTs because I have to make sure I remember when its going to be taken out of my account. Fortunately, I don't have any horror stories.

But, I opt for Online Bill Pay. Its my GodSend. :)

Really, you get charged an installment fee? Never had that problem. Hmmm…

6 calquist

I will hunt you down and slap you if I find out that you pay another installment fee. Sure $60 isn't going to put you on the street, but it is your $60!

EFTs can be a bad thing if you sign up for absolutely everything with them. They are also bad if you are lazy and do not keep up with bank accounts and wouldn't discover a bad charge until months later. As long as you are not using a shady insurance company like The General or 1800SAFEAUTO, you will be fine when it comes to canceling and setting up an EFT is in your best interest. (I will also accept paying it off in 1 lump sum as a tolerable solution).

7 FB @ FabulouslyBroke.com

If it is not a set amount like $120 a month or if it's something you want to cancel later.. then EFTs can be a nightmare

I once tried to do a EFT on my cellphone bill and was accidentally charged $500!!!!

Needless to say, I pay everything ad hoc.

8 Punch Debt In The Face

Well isn't this interesting. I was leaning towards setting up the EFT to save the installment fee, but it seems that there can be issues on canceling it or having it adjust if the balance changes. I might have to take Donnie and Calquists advice and just pay the balance in full instead, although I do hate departing with such a large chunk of change.

Thank you all for your epic responses I always take them in to consideration!

9 Anonymous

This is an excellent example of what I wrote about in a Crown Magazine article titled "How I paid off my mortgage with peanut butter and jelly sandwiches." Simply adjusting the payment method to cancel the monthly fee is good. Even better is to use the Index Card System. Write the months January through December on index cards and the amount of $5 on each. Then treat that card like a regular bill and send the $5 towards some other existing debt. Then punch that debt in the face and knock it out that much sooner.

Your blog is awesome!

Bill Provenzano
The Christian Trading Coach

10 Anonymous

Here is my EFT horror story.

I signed up for a two year gym membership (I know, big mistake…), but that's not the problem.

After the two years was up, they continued to charge me.

Obviously, I was not a happy camper. I went to the gym, who said they could do nothing because they outsourced their billing.

So I called up the billing company, and got a copy of my contract. After the two years was up, they had automatically signed me up for another THIRTY years.

At this point, I did have the option to cancel, but only after providing more than 30 days notice, which meant that I had to pay another month's bill before I could cancel.

I would definitely avoid EFTs (except for student loans like you mentioned).

When you give any company automatic access to account, you take away your first line of defense – reviewing your bill. It's a lot easier to argue about a bill before you pay it than it is to try to get a refund.

Can I suggest a fourth option – put away money each month, to difuse the impact of the six-months-at-a-time bill?

11 Punch Debt In The Face

@ Anonymous 1- I agree it is stupid to throw away the money as it all adds up over time. I will probably throw down one lump sum to get rid of it.

@ Anonymous 2 – Your EFT horror story is enough to keep me away from messing with it. I think I will take you up on your fourth option and start saving for my next policy renewal.

12 eemusings

Can't STAND direct debits! (what we call EFTs i suppose). Why would you trust anyone to have access to your account if you can help it? I guess I speak from experience having been burned once (and that was enough, lol. Was for about $60 or something, by an old utility company who billed me for an extra month after I moved out of a place).

Yeah, it's a nightmare if things go wrong – it's not that easy to straighten them out. I also agree that it's not good for varying amounts, or if you're not the kind to keep a close eye on your account (unless the company sends you reminders just before they take the payment out).

Definitely try setting aside money every month! That's what I try to do. One day I'd like to be able to be a whole year ahead and pay upfront, annually. On my Visa, of course, for the rewards :)

13 Matthew Cokley

What a amazing post.

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