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Make Your Debt Payments Automatic

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Today is the last in the Pay Off Your Debt Faster series. Over the last month, I shared step by step how the two of you can speed up your debt free plan. The last step – automating your payments – has been touched on briefly, but it has such a huge impact on your success, I want to take a few minutes to focus on how you can do it today.

Why You Should Automate Your Debt Payments

It’s no secret that I love automating finances, whether it’s for debt, savings, or investing. It’s a solution that has helped us tremendously with reaching our money goals.

One of the biggest reasons why automating your finances makes sense is that most couples I know live full (and sometimes hectic) lives and their payments already scheduled lets them focus on more important things. We have had times where work or family have kept us busy, but because our payments were already schedule, our cash flow didn’t suffer and we avoided getting it with late fees.

How to Set Up Your Debt Payments

Most banks and credit unions offer this money and time saving feature for free. If yours doesn’t or they are slow with their bill pay system, it’s time to switch for your joint accounts. Your bank should be helping you build your finances, not make it harder. We made the switch years ago to Capital One 360 and we’ve been happy with their service and the nice little bonus of earning some interest with checking. Always a plus in my book!

Getting your debt payments started is as simply as getting the minimums and debt snow ball payments up with them schedule early enough so you don’t ever have to pay late fees again.

We only needed around 20 minutes to set things up and we spend like 15 minutes each month just to review things.The goals is to make it easy for us to maintain and monitor so we can focus on more important things. You can also use services like Personal Capital, Finovera, or Mint to keep you up to date of your progress.

So how do you do it?

  1. Log into your checking account and go to your bill pay section
  2. Schedule your minimum and snowball/avalanche payments
  3. When scheduling payments give your bank enough time to process so you don’t ever get hit with late fees. (If they have really slow service, go ahead and switch banks. You shouldn’t have to stress over bills getting paid on time.)

And just like that, you’re done!

The only time you’d probably need to mess with things is when you have to increasing payments (huzzah!) or when you’ve paid off your debts (score!).

Thoughts on Paying Debt Off Faster

I’d love to get your take on how you manage to stay the course for your finances. How much of your financial system is automated?  How many of you have scheduled your debt payments? Which bank or credit union do you recommend? Which ones do you avoid?

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Where to Automate Your Finances

We’re big believers that money is a tool to help you reach your personal goals.  To help us manage our money without being obsessed (and stressed) with it, we’ve created a financial system that helps us stay on track.

Why You Should Automate Your Finances

If you want to know why automating your finances is a practical move, consider my personal example. I have busy the last couple of weeks with family issues (helping a relative get back on their feet) and juggling my temporary assignment with my freelance work. I’ve decided I’m doing too much and I have been cutting back on my hours across the board.

The good news is our cash flow hasn’t suffered (it’s actually improved) and one reason is that our bill pay and finances are pretty much on automatic. Without automation we would probably be late on some payments since things come up and we can forget. We developed this system so we can check our balances once a week for 5 minutes to make sure everything is running smoothly.

Automate Your Savings

Start small and automate your money to put into joint and/or individual savings. You’ll hardly notice the slightly smaller paychecks as you start build up your emergency fund. This step can help you build financial cushion, especially in turbulent economic times like these. Find an FDIC bank or CUNA credit union in your neighborhood that offer high interest rates for savings and watch it grow faster.

Automate Paying Bills

Most banks and credit unions offer this money and time saving feature. It took less than an hour to set up most of our bills with our joint checking  account. We only need around 20 minutes a month to pay bills.  Once you set your online bill pay system up, it’s very easy to maintain.

We took copies of our bills and set them in a pile. I entered the bill names, addresses, due dates, account numbers, and bill amounts with our bank.  You can set the bills up to be recurring, where it will pay it automatically for you. If a bill changes from month to month, I just login and change the amount. The bank takes care of the rest.

If you have a small business, don’t forget to automate money to go to a high interest  rate account for your taxes.

Automate Your 401(k) and IRA Contributions

Check with your Human Resource department  at work and see if your company offers a match on employee contributions and how much is it. Another benefit to contributing to your 401k is that the contribution money is taken pre-tax, which can reduce your taxable income.

Once your build up your emergency fund, eliminated your credit card debt, and have increased your income; funnel some money into an IRA. You want to still look for low cost index funds to put your money in.

The two most important factors for obtaining the benefit of compound interest are the interest rate and the length of time your money earns interest. The latter is the most important; your investment will grow slowly at first, but over the long term you will see dramatic improvements.

Automate Extra Mortgage Payments

(Updated) I decided to run the numbers and see what we could come up with. We wanted a mortgage acceleration plan that was sustainable and had some impact with the mortgage.

We decided to look at our much of our mortgage payments this year were actually going towards paying down the principle. Seeing how it was only around $150, we decided to use that as a guide for our acceleration payments.

If we continue to pay $150/month extra towards principle, our 30 year mortgage will become a 20 year mortgage. That means we’ll save $42,408.57  in interest payments!

If we continue to pay $150/month extra towards principle and put down our $8,000 tax credit, our 30 year mortgage becomes a 18 year mortgage. That means we’ll save $55,113.56 in interest payments!

Your Take on Automating Finances

How much of your financial system is automated? We review our system time to time to see how we can improve.

How to Automate Your Savings and Retirement Easily

Build your net worth without stressing out

I’ve talked a bit before about starting your retirement planning while you’re young. While that’s an important part of your finances, that’s not the only thing you should work on. Automating your savings, bills, and retirement can ease your stress and help you build your net worth more quickly.

Automated System for Our Own Finances

Here are some things we’ve done with our finances to help us reach our money goals:

We have a portion of our paycheck transferred to a high interest savings account.

We have some money transferred over from checking to savings regularly, like a bill. Start small and automate your money to put into savings. You’ll become use to the slightly small paycheck as you start savings. The first thing you need to save for is an emergency fund. This step can help you build financial cushion, especially in turbulent economic times like these.

Find an FDIC bank or CUNA credit union that offer high interest rates for savings and watch it grow faster. For us Capital 360 provides us an easy to grow our savings. You can open a checking account with Capital 360, simply click here to get started.

We’ve set up free online bill pay with our bank.

This has been a great system for us. Most banks and credit unions offer this money and time saving feature. Spend an hour setting this up with your bills, account numbers, due dates, and amounts, and you’ll only need a few minutes a month to keep it up. Online bill pay can help you manage your bills without having to worry about paper bills and checks.

With auto debit, the company automatically takes the amount out of your checking account at the due date. If you set up either correctly, you’ll avoid late fees. I like have more control over my account and online bill pay can help me if something happens with our direct deposits.

I had a friend who got burned due to a Human Resource error with her deposits. Even though she called her bills and explained the situation some still withdrew the regular amount (they already had her banking information)  and it caused a cascade of fees.

Automate contributions to your company’s 401k program.

My husband’s job offers a 401(k) with a match and we try to take advantage of it. Try to at least set aside enough money to receive the company match as it’s basically free money in your pocket. Look for low cost index funds to put your money in. Pay off your high interest debt first, before investing for retirement.

Some personal finance experts suggest put 5- 10% of your paycheck into a retirement account. You can always increase the amount as you receive raises and promotions.

If your company an Employee Stock Purchase Program, you may want to consider participating.  ESSP allows you to have some of your paycheck deducted to buy your company’s shares at a discount from its market price. Just remember to be diversified with your retirement fund and not too heavily invested in your company.

Have a small portion of your paycheck transferred into an IRA account.

I have an IRA set up for me to transfer money. Once your build up your emergency fund (like 3-6 months of expenses) and eliminated your high interest credit card debt, funnel some of your income into an IRA. Banks, brokerages, and credit unions offer IRAs.

Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this. Compare your options to see if you’re getting a good deal.

We have an account with Betterment that has been really easy to maintain. If you’re interested, you can sign up for a new account at Betterment here. If you want a system that is easy to manage and has a track record of long term growth, you want to look for low cost index funds to put your money in.

These are mutual funds that track a market index such as the S&P 500. They have low expense fees because they not usually actively managed.

Thoughts on Automating Your Finances

How about you? How much of your finances is automated? How has automating your finances improved (or worsen) since switching?