Lolita: I am afraid of "auto-payments" to my creditors. I fear forgetting about the payment and/or the creditor taking too much out of my account. Any suggestions for the best way to pay bills?
I have to say, I’m a big fan of placing some payments on autopilot mainly for the convenience factor; those bills are always paid on time, saving you time and stress. Timely bill payment is also one of the surest ways to strengthen one’s credit score. In some cases, banks will also provide fee-free checking to customers who automatically pay a certain number of bills from their accounts each month.
But I understand your trepidations. The automatic payment system isn’t perfect and billing mistakes do happen from time to time. According to NACHA, the Electronic Payment Association, our of every 100,000 auto payments, 220 have errors. It’s important to still actively monitor your accounts to prevent slip-ups like erroneous charges or double-billing. You also need to be sure that if you’re hooking up a bill to a checking account, you have sufficient funds at all times. Otherwise, overdraft fees can take a big bite out of your cash flow.
To make life easier, you may want to consider a two-step approach that starts with settling auto payments with your credit card, then clearing off your card’s balance with funds from your checking account. This may not work with all your creditors (like your mortgage lender), but it should be allowed for smaller recurring charges, like your gym membership fee and cellphone bill. By paying with a credit card first, you give yourself an extra month or so to review the bill for errors and, in the meantime, your cash is safe. If you want extra help, an alert service like Billguard.com will scan up to three of your cards for fraud and billing mistakes free of charge. And if you ever have a dispute, your card issuer will often remove that charge until the case is settled.
The last step for smooth auto-paying is to ensure that each payment actually goes through. “Sometimes payments aren’t actually processed, despite getting a confirmation,” says John Ulzheimer, president of consumer education at SmartCredit. Make a habit of visiting your accounts to verify all automatic payments.
Mitra asks: I always clean out my file cabinet and desk drawer at the end of the year... How long should we hold onto documents such as utility bills, bank statements, tax records, hospital bills and statements?
Mitra – I know exactly what you’re going through! No matter how organized our lives are, paperwork has a way of piling up. Here are some general guidelines for managing the documents you cite.
Tax records: In most cases, you’ll want to keep all returns and related tax paperwork (1099s, W-2s, receipts, year-end bank statements, etc.) for at least three years. In general, the IRS has three years from the due date of your tax return to assess and collect additional taxes, according to Jackie Perlman, Principal Tax Research Analyst at The Tax Institute at H&R Block. The three-year statute can be longer, however. “For instance, if you omit more than 25% of your income from your return, the statute of limitation is six years,” she says.
Bank statements: Keep your monthly statements in a safe place until you receive your year-end statement, at which point you can shred them. Keep you year-end bank statements that show interest earned for at least three years, since they’ll be factored into your tax returns.
Hospital bills and medical records: Hold onto medical paperwork and receipts for at least three years, considering you may be deducting a portion of your out-of-pocket medical expenses from your taxes. If you have an insurance statement that was in dispute and got settled, you may want to keep it for several more years as proof.
Utility bills: Keep for one year in case you have any billing disputes that come up during the year. But if you deducted any part of your utility bill as, say, part of a home office deduction, you’ll want to treat them like tax-related documents and store for at least three years.
Going forward, one way to reduce your paper clutter (and help the environment) is by signing up for electronic statements wherever possible. You can still retain access to your paper statements in your online accounts in case you ever need to download, print or email them.
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at email@example.com.