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What Is Bill Pay and How Does It Work?

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Bill pay services allow consumers to pay their bills via an app or a website. Instead of writing a check and sending it in the mail, you can simply use your computer or smartphone and make the payment online. These services can be convenient to people who want to make bill paying as efficient as possible, with features such as automated payments, reminders about payment due dates and more. Here is what you should know about bill pay service and how it works.

What is bill pay?

Bill pay is a convenient service offered by many banks and credit unions. This service allows you to organize all of your recurring bills in one place and pay them automatically. So instead of paying your rent on one site, your credit card bill on another, your electric bill on another and your phone bill on yet another, you can use your billpay service to take care of all of your bills at once. You can also use bill pay to make manual or one-time bill payments as necessary.

Along with banks and credit unions, there also are third-party companies that offer bill pay services. Quicken Bill Pay, Mint Bills and MyCheckFree are just some examples of third-party bill pay services you might choose to use.

How does bill pay work?

The process for online bill pay is pretty simple overall, no matter which financial institution you are working with. One of the key choices you will make is whether you want all of your bills paid from one site automatically, or if you just want to use the service for one-time payments as needed.

You also might decide you would rather pay each bill manually rather than automatically, if you feel that would help you keep a better handle on where your money is going and when. However, you can often have email or text alerts set up that let you know when a bill is due and when it has been paid automatically, so you can easily keep track of every payment for your records.

Many bill pay services allow for plenty of customization. At Wells Fargo, for instance, you can set up autopay, keep track of when to pay your bills, view your payment history and even receive eBills from companies that offer them. You can also add new one-time and recurring payees at any time.

Pros and cons of bill pay services

Pros

  • It’s convenient: Bill pay services can organize and pay all of your bills in one place, making things easier on you. Instead of having to go through different sites and apps to pay and monitor your bills, you can simply log onto your bill pay provider and do it all from one site if you so choose.
  • It provides a digital trail: When you pay your bills online, a receipt/record is typically automatically generated. This can be helpful should you forget if you paid a certain bill, or need proof that a payment was sent to a specific company.
  • It helps you avoid fees: One easy way to avoid late payment fees is to set up automatic bill payments via your bill pay service. When bill payments are automated, you can never simply forget to pay a bill.
  • It’s environmentally friendly: When using automatic bill pay, you can completely avoid writing physical checks and going the old-school envelopes and stamps route.

Cons

  • It’s not always fast: While most merchants accept online payments, some may not. For example, many landlords still only accept paper checks. If your merchant or payee does not accept electronic payments, you can have your bank or credit union send a check to them. In this case, you should schedule payments at least five business days ahead of time to avoid being late.
  • It can lead to an overdrawn account: Automatic payments can sometimes lead to unexpected fees. If you lack the funds in your bank account to cover a payment, you could get hit with fees. So always make sure you have enough in your bank account to cover your payments due.
  • It doesn’t automatically cover changes to bill amount: If you have a bill that fluctuates but you have your automatic payments set to a static amount, you could be in danger of not paying off your balance. You could also get hit with late fees if you’re not paying attention to the fluctuation of the bill.
  • You may have some security concerns: Some people may have concerns about paying their bills or banking online, as there is the potential for hacking to occur, which is not the case with the old-fashioned, stamp-and-envelope route. However, online banking and financial transactions are extremely common now, and sites use security features such as complex passwords and multifactor authentication to help secure your information. Although it’s always possible you could be hacked, as with anything online, overall you should be pretty safe using bill pay services.

Where to get bill pay service

Your bank or credit union

One of the best ways to use a bill pay service is through your bank or credit union. Almost every major bank and credit union offers this service, including Chase, Wells Fargo, Discover, Bank of America and Ally. Most bill pay services are free as long as you have an active checking account with the bank or credit union.

Bill pay apps or software

You can also use a bill pay app or software to pay your bills. You might also already be using software, such as Quicken, and therefore find it simple to go that route.

  • Quicken Bill Manager: If you’re a Quicken user, you can pay your bills using Quicken Bill Manager (formerly known as Quicken Bill Pay). If you’re not already a Quicken user, this might not be your best option, as pricing for Quicken that includes Bill Manager starts at $77.99 a year.
  • Mint: The budgeting app Mint is free to use and offers a bill pay service. If you’re using a credit card to pay your bills, there will be a fee.
  • Prism: Prism is also a free app with a bill pay option. However, Prism notes that some of your billers may charge a fee if you are using an outside bill pay app rather than your bank or credit union. When it comes to these fees, Prism shows the cheapest option first for each bill listed.

Merchants and service providers

Most merchants and service providers — such as phone companies, mortgage lenders and utility providers — also offer bill pay services themselves, so you don’t have to go through your bank or credit union or any other outside source. This could be a good option if you like the satisfaction of going through and paying bills one by one on their respective websites, rather than all in one place.

If you’re a Verizon customer, for example, you can pay your bill online or through the company’s app. You can also pay bills via its Fios TV cable box. If you use Frontier as your internet provider, you can also pay using the company’s site or app. You may also be able to do this with your electric company, credit card payments and more. However, this isn’t as convenient an option as paying all your bills through one bill pay service, which is one of the pros of simply doing everything through a single site.

How to set up online bill pay

Once you decide which bill pay service you want to use, it’s fairly easy to get it going. The process will vary slightly depending on the bill pay service you decide to use, and how you want to pay your bills, but generally speaking, the process is as follows:

  1. Gather your bills: Organize all the bills you want to pay using the bill pay service. Make sure you know the payee’s vital info, such as account numbers and addresses, should the bank need to send a paper check.
  2. Enter the info: Enter each biller’s information into the service. Double check each entry for accuracy.
  3. Select payment and timing: Once each biller’s information is verified, go through each and select the amount you want to pay and the date when it should be paid. Remember to leave a five-day cushion in case your bank or credit union needs to send a check. Also make sure you note how this will be paid. Sometimes with bill pay services, you must pay through a checking account, but in other cases, you may be able to use your credit card.
  4. Get reminders: Now that everything is set up, consider setting reminders based on the bills’ due dates, and find out when they were officially paid. Think of this as an extra layer of security to ensure the service is running smoothly.

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How to Handle a Bounced Check

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A bounced check is a troublesome ordeal — not only do you (or your intended recipient) not get the money promised by the writer of the check, you can get hit with a bounced check fee from your bank or credit union. Here’s how to handle the situation if you’ve written a check that bounced or if you’ve received a bounced check.

Why does a check bounce?

A bounced check is a term for a check that cannot be processed because the account it is tied to has nonsufficient funds (NSF). When a bank attempts to retrieve the money and comes up short, the check is “bounced” back to the account holder and they are often charged a fee.

A common reason for a bounced check involves someone cashing a personal check with insufficient funds. The check writer usually was simply unaware that their funds were too low to cover the amount on the check. Other times, people can write bad checks in a deliberate attempt to scam others.

What to do if you’ve bounced a check

If you’ve accidentally bounced a check, there are some simple steps you can take to resolve the issue. Here’s what you should do:

  1. Contact the check’s recipient: Once you realize you’ve bounced a check, immediately contact the bank, company or individual who received the check. Inform them of the situation and be prepared to discuss how you’re going to remedy the bounced check.
  2. Make the payment: You’ll want to arrange a payment to cover the check’s amount and any associated fees, like a returned check charge. If you now have the correct amount of money in your account, you can ask the recipient to redeposit the check. A returned check can be deposited again, but generally only once.
  3. Pay your fees: After making good on the payment, you’ll want to pay the fees coming from your bank or credit union. Depending on which state you live in, you’ll be paying a maximum NSF fee of between $20 and $40. If this was your first bounced check, contact your bank and ask them to waive the fee. Banks will often oblige, especially if you’ve been a good customer.
  4. Make changes to your banking habits: With the matter safely handled, you might consider reviewing your banking habits as a whole to make sure you don’t have to deal with this again in the future. We’ll give you some tips on how to do that below.

What to do if you’ve received a bounced check

If you’ve received a bounced check, first make sure that check is real. Examine the check for security features, like watermarks, and make sure the check has a legitimate routing number printed on the bottom. Match the information on the check with the information from the issuer. If everything checks out (pun intended), follow the steps below:

  1. Contact the sender: As soon as possible, contact the person or company who sent the bounced check. Try to remain unemotional as you explain the circumstances. Politely ask the check issuer for payment. If they comply, then great. If not, you’ll have to take additional actions to settle the matter.
  2. Wait and redeposit the check: The check issuer may ask you to simply wait a few days and redeposit the check. If you can, try to cash the check at the issuer’s bank so that if it bounces again, you won’t get hit with another NSF charge by your bank.
  3. Send a “bad check” demand letter: If you’re having trouble getting a response from the check issuer, send them a bad check demand letter. This is a formal request for payment, sent by certified mail to the issuer. In the letter, include as many details as possible. Here’s a template you can follow to help get you started.
  4. Consider taking legal action: When all else fails, you can sue the check issuer in small claims court. The terms of suing in small claims court vary by state, but generally you can sue for up to a few thousand dollars. When you go to court, make sure to bring as much documentation as possible, including the bounced check, correspondence between you and the issuer, the certified demand letter and more.

Potential consequences of bouncing a check

Wondering what happens if you bounce a check? Here are the possible outcomes of a bounced check.

You’ll owe bounced check fees

Bouncing a check can get quite expensive. Depending on your bank or credit union, you could have to pay a returned item fee — also known as an NSF fee — or an overdraft fee. The difference between the two is small, but important. An NSF fee is charged when you write a check for an amount larger than what is in the connected bank account. An overdraft fee is similar, in that it is charged when a debit is larger than the account balance. The key difference is that when a NSF/returned item fee is charged, the transaction cost is not covered by the bank — hence the term bounced check. When an overdraft fee is charged, the bank does cover the amount of the transaction.

Let’s say you write a check for $100 that ends up bouncing. Not only would you still owe the $100, you’d also owe a NSF fee of up to anywhere from $20 to $40. If your bank charges an overdraft fee instead, you’d likely owe around $30 on top of the $100 that was debited from your account.

You could hurt your credit score

A bounced check typically doesn’t impact your credit score. However, if you fail to pay a NSF fee or the amount owed to a company and they report it to a collections agency, your score will be negatively impacted.

Your account may be closed

If you write multiple bad checks, your bank could close your account. Your bank could also report you to ChexSystems, a company that tracks how consumers use bank accounts and banking systems. Once your negative information is logged in ChexSystems, it will become increasingly difficult to open a new checking account at a different bank.

You could face legal trouble

A bounced check could land you in legal trouble. Each state has its own set of laws, but a deliberately bounced check could result in criminal and/or civil penalties. For example, in New York, if you’re convicted of knowingly writing a bad check, you could face up to three months in jail and a fine of up to $750, depending on the value of the check. If you are prosecuted in civil court, you could be on the hook for the check’s amount, plus lawyer and court fees.

How to avoid bouncing checks in the future

The best way to avoid writing bad checks is keeping detailed records and being mindful of your budget. One bounced check here or there isn’t a huge deal, but if it becomes a habit, it could negatively impact your life in many ways.

Here are some steps to take to avoid a bounced check down the line:

  • Know how much you have in your account: Keep detailed records of your bank account. You can even use an app to help you stay in the know. Set up notifications that alert you when your bank account drops below a certain point.
  • Regularly balance your account: Use an app or a spreadsheet system to budget your money, which will in turn keep your account balanced. If need be, keep an extra $100 or so in your account for extra padding each month. If you find that your account is often unbalanced, review your budget and trim unnecessary expenses.
  • Consider overdraft protection: You might want to consider signing up for your bank’s overdraft protection. With this service, your bank will cover the cost of your transaction even if you don’t have the funds. However, the coverage comes with a fee. A better idea might be to tie an additional account — like a savings account — to your checking account, so that the funds are withdrawn from there instead of getting hit with a fee.

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Strategies to Save

How to Build Wealth at Any Stage in Your Career

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Setting aside a certain amount of money each month to slowly build your savings is a key financial strategy. Overhauling your entire financial life and setting new priorities across the board is how you start building wealth.

A healthy savings account balance can help pay for your kids’ college education — but having wealth means you’ll be able to live the life you want, and pay for the college education of your grandchildren, too. You’ll need both new priorities and a great savings account to build wealth — below you’ll find our guide on how to build wealth at any stage of life.

6 Steps to Build Wealth

Set investing goals to build wealth

Your wealth-building journey should begin by setting long-term investing goals. If you’re married or share expenses with a loved one, that means having a detailed conversation about how you want to invest your money.

These are only a few points you may need to address:

The more detailed you get about these goals, the better. Because believe it or not, when it comes to investing, sometimes we’re our own worst enemy. As Matt Cooley, a certified financial planner and founder of Inspire Wealth Partners, explained, research suggests our natural biases can prevent us from making sound investment decisions. This is why it’s so important to set investing goals before funneling money into the stock market.

“Whether you’re a personal investor, an investment manager, a financial planner, or anyone else, you can benefit from understanding the internal driving forces behind your investment decisions,” added Cooley.

Invest in the stock market to build wealth

Once you’ve set goals, it’s time to invest your money in the stock market. If the stock market frightens you, Leibel Sternbach, an accredited portfolio management advisor suggests keeping in mind that since its creation in the 1800s, the market has offered an average 6% annual return — meanwhile, the current average savings account interest rate is a measly 0.27%. If you truly want to build wealth, you must be invested in the stock market.

When you invest in the market, your money grows without much effort. This is key to building wealth: passive income. If you need help figuring out how, exactly, to go about investing in the market, you can check out a robo-advisor like Betterment, which makes investing as easy as possible.

One way to break into the market is to research mutual funds that have a good historical track record and stick with them for the first few years. This will allow you to learn about the market while being invested with relatively low risk. You could also try investing in index funds, as they’re low-cost and consistent.

Don’t forget to keep building your savings

You’ll still need to build your savings as part of your wealth building strategy. One easy way to do that is to follow the 50/30/20 rule: this guideline suggests that you budget 50% of your after-tax income to needs (like paying for housing and basic living costs), 30% to wants (dining out and other discretionary spending) and 20% to savings. You might want to break each of these categories into their own separate bank accounts, which could make it easier to track. Keep those savings in a high-yield savings account.

The 50/30/20 rule will help build your savings by painting a clearer picture of your financial habits. For example, if you see that your needs are exceeding 50%, you can dig deeper and figure out why. Perhaps you need a less expensive car so your insurance isn’t so high. The concrete numbers of the 50/30/20 rule will keep you on the right track toward building a healthy savings cushion.

Reduce your expenses to build wealth

The more money you can free up from your expenses, the more you can funnel your investments for wealth. One easy place to cut back? Subscription services. Those monthly charges of $6 here and $12 there add up — and probably to a higher total than you even realize.

According to a study from West Monroe Partners, 84% of Americans underestimate how much they pay each month on subscription services. Start tracking your subscription services and then cut any that you haven’t used within the last two months.

Renegotiate your salary to build wealth

You can build wealth faster if there’s more money coming in, so try to renegotiate your salary. Before talking with your boss, research salary examples for your role and set your goal. You want to be realistic and leave some wiggle room for the actual negotiation process.

Go into the meeting with clear examples of how your performance has helped the company’s bottom line and some ways you will continue this trajectory. Your boss is more likely to give you a raise if they see your benefit.

Build wealth by avoiding lifestyle creep

Once you start getting traction in the stock market and a higher salary, don’t spend the extra money. This is the definition of “lifestyle creep” — the tendency people have to spend more as they earn more. One financial expert we spoke with cited lifestyle creep as one of the biggest mistakes that people make when attempting to build wealth: you suddenly have some extra cash and so, well of course, you buy a bigger car.

Avoid lifestyle creep by living as if you never got that raise, or never saw those extra gains from your investments. Funnel them into your investments and add more to your savings account every month. If you can avoid spending more as you earn more, you’ll turbocharge the wealth building process.

How to build wealth at any age

The first thing to keep in mind when starting to build wealth is that it’s a big picture effort. But you make that big picture happen by taking many small steps: making a budget, scheduling monthly deposits in savings, learning more about the stock market whenever you have free time.

“Above all, focus on making small incremental changes,” said Sternbach. “Don’t worry about how much you need to retire, [and] focus instead on just setting aside the savings. Any amount will do; try to increase that amount each year and two. [And] once you invest, don’t look at your investments for another few years.”

When starting out, keep a strict budget, reduce expenses and maintain your savings rate. Add additional revenue streams if you can — maybe there’s a side-hustle like selling items online that could help boost your income. Do plenty of research on the stock market and be sure to max out any retirement plans, especially if your company offers a 401(k) matching program. Remember, these small first steps will form the path that eventually leads to wealth.

Strategies for building wealth in your 20s

The sooner you start saving, the more time you’ll have to build wealth. When you’re young, don’t be so worried about setting aside huge chunks of change every month. Instead, save as much as you can and pay down debt. Stick to a detailed budget and invest in yourself through higher education. Be consistent.

“Consistent discipline is the key to building wealth,” said Cooley. “For most, it can take decades of savings to build real wealth. Building good habits and automating your saving and investing is critically important.”

How to build wealth in your 30s

Your 30s are when you should be ramping up your rate of saving and investing. Make sure you’re maxing out your 401(k) at work, as well as investing in the market outside of your retirement account.

Sternbach recommends investing in things that will eventually reduce your expenses. This includes buying a house or purchasing life insurance: “These are things that over time get more expensive, so buy them early on when they are cheap and you will save a bundle.”

Wealth building in your 40s

Be mindful of lifestyle creep in your 40s, since you’re likely making more money than ever. Increase your savings rate and diversify your investments. Make sure you’re prioritizing yourself.

“Save for your retirement first before you save for college,” said Cynthia Meyer, a certified financial planner and founder of Real Life Planning. “There are many ways to pay for college, but only one way to pay for retirement.”

Keep building wealth in your 50s

As you close in on retirement, it’s time to get a bit more protective of your money.

“Start shifting your investments to more conservative investments that have less volatility, so that if you do need to retire early you have the financial ability to,” explained Sternbach. “Few people retire when they plan to — layoffs or medical issues are a leading cause — and the last thing you want is to have to start draining your nestegg while the market is down, locking in those losses permanently.”

Where should you stash your wealth?

Build wealth by choosing the right online broker

Because investing in the market is one of the primary ways you’ll build your wealth, it’s important to choose the right investment broker. Look for one that matches your needs as closely as possible.

Hands-on investors are people who like reading about a broad selection of investment options. They like to pick their own assets, and build a portfolio themselves. The best choice for hands-on investors is an online brokerage account.

Hands-off, or passive, investors are people who want to put their money to work in the market, but would prefer not to get too involved in the details of their investment portfolio. They may not know as much about markets as a more hands-on investor, or they may have too many other things going on in their lives to devote extra time to managing investments. Hands-off investors should check out our listing of the best robo-advisors, special brokerage platforms that make investing easy.

How to choose the right savings account for your wealth

When stashing your wealth, look for savings accounts that offer you the best savings rates, and, typically, online banks have the highest rates. If you don’t already have an HSBC account, check out its HSBC Direct offering. This online-only account comes with a 0.15% APY on all balances. The catch, like we said, is that it must be your first HSBC account.

If you’re a fitness buff, check out Fitness Bank. It ties your savings rate to your monthly step count. If you log 12,500 steps or more, you’ll get the highest rate — 0.85%. However, make sure you keep your steps up, as the rate drops as your steps drop.

Credit unions also offer robust savings options. Digital Federal Credit Union offers a staggering 6.17% APY, but that’s only on the first $1,000 in the account; after that, you’ll earn 0.25% APY.

Build a CD ladder

Another strategy for stashing your wealth is to create a certificate of deposit (CD) ladder. A CD ladder is a collection of several CDs that have varying terms. You might break it out by opening a 1-year CD, a 2-year CD, a 3-year CD, a 4-year CD and a 5-year CD — all with $1,000 each. By staggering the CDs, you’re guaranteeing each CD will complete its term at predictable intervals. And because CDs carry higher interest rates than savings accounts, you’ll be sitting on a nice money generator.

The downside of a CD ladder? It’s a lot of cash locked away and, should rates increase, you won’t be able to take advantage of them if your money is tied up. However, if you’re interested in this nuanced approach of building wealth and can make it happen financially, a CD ladder could be a smart strategy.