Money Decisions: From credit card payments, bills and insurance premiums, don’t delay your money decisions

Mayank keeps postponing his decisions on money matters. He has realised the harm it was doing to his long-term goals and has since automated his investment processes. Despite having a comfortable income, he is yet to address the issue of his inability to stick to payment schedules for his dues and expenses. This includes card payments, bills and insurance premiums. He has not been bothered about it because he does not see it as having too serious an impact on his financial situation. Is he right in not taking this aspect seriously?

Mayank’s history of delayed payments and decisions can affect his financial situation in multiple ways. It will show up in his credit information report and will result in a poor credit score, which in turn will translate into high cost of borrowing and stiffer terms when he needs to take loans. Rebuilding his credit score will take him a long time and he should start immediately since his payment delays are not because of shortage of funds but because of the way he deals with money. As a serious financial consequence of delaying his financial decisions, he may lose his insurance protection. If the premiums are not paid or renewed on time to keep the policy in force, insurance companies are not liable to provide cover, leaving him open to the risk of shouldering large expenses and his dependants unprotected.

There are costs and penalties that Mayank will be bearing for delayed payments and these can add up to a large sum. He should see these as funds that could have been invested to contribute to his goals or even spent on things he would like to buy. Penalties may also take the form of benefits forfeited. For example, he may lose the benefits of a no-claim bonus on general insurance policies and accumulated reward points on cards, depending on the terms of the product. Insurance companies may refuse to provide cover or may expect a higher premium to provide the cover, while the credit card companies may offer a lower credit limit. All of these will have an impact on his long-term financial situation.

He needs to replicate his success by automating his investments with his expenses too. He should sign up for the bill payment services provided by most banks, and register all his service providers so that he can make the payment process easy and, therefore, less likely to be postponed. Wherever possible, such as for insurance premiums, he should choose the annual payment option so that the chance of missing out on a payment is lower. He should keep his contact details with his service providers updated so that he gets the intimation of dues and can take timely action. Taking corrective action immediately will not only protect his current situation but also help redeem his past mistakes over time.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.