What Would You Do: Pay Now or Pay Later?

by Carrie Kirby on 29 April 2008 12 comments
Photo: Carrie Kirby

I have a little financial puzzle before me, and I thought it would be fun to get feedback from the Wise Bread community on it.

 My daughter's preschool had a software glitch and failed to bill us for most months since September. We now owe them around $1,000. (Before you get all up in my grill about this, let me assure you that I called the office several times to point out their failure to charge our credit card.)

We have been given the following options: Pay it all now, pay it in a few installments, or start paying the regular $200 a month now and continue paying for about 6 months after the school year ends.

Normally, I would choose the last option. After all, being allowed to pay in installments, interest-free is a gift. That would also allow us to take the tuition out of our budget each month, as we had originally hoped to manage, instead of paying the lump sum out of our home-improvement account.

However, I have the Citibank CashReturns card, and the 5% introductory cash-back rate ends next week.

If I pay up front, I'll get 5 percent back. I'll also get the good karma of helping out our village, which runs the preschool. If I keep that $1,000 in my money-market account instead, I'll make 2.7 percent on it, and still get 1 percent back from each payment once my credit card reverts to the regular cash-back rate. However, I'll also lose the opportunity to spend that money right away on home improvements. And I will have to feel that uncomfortable feeling of dipping into savings to pay for a regular expense, which should have come out of the monthly budget.

As a side note, I was surprised how angry the other parents were when they got a letter notifying them of the autopay glitch. I was actually thankful for the unplanned billing delay, since despite our intentions I would have had a hard time paying the tuition out of my monthly budget last fall.

Do you consider it your responsibility to check that you are being properly billed when you sign up to pay monthly expenses on your credit card? If someone hit you with a $1,000 bill instead of five monthly $200 bills, would you be angry? Or would you feel like you lucked out because you got to keep your money longer? 

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Guest's picture
Justin

Hm I think I would look at it like this: you would've paid that 1000 bucks one way or another, whether you do it in installment plans or not. I sympathize with the feeling of taking the money of your savings too, as I also hate the feeling of giving out large amounts of money. I would pay the $1000 now, and then just do the $200/month installment plan (to your money market instead of the school) after the school year ends until you have replaced all that money. You can still get your home improvement plans done, though possibly a little bit later. I don't pretend to know the condition of your home or how badly it needs these repairs but I don't like have debt that I can get rid of and would pay off those debts if I had the money.

Also...
5% of 1000 is $50, whereas 2.7% is only $27. 1% of $200 is $2, which means you make $12 if you pay the installment plan, for a total of $39 by keeping the $1000 in your money market vs giving it all to the school now and making $50 off of it.

Karma, btw, is reciprocal :D

Guest's picture

I would just pay it all, even the future. Isn't there only one more month left in school? I would just pay for all of it and be done with it and not have to deal with billing morons until next year.

Guest's picture

That's money that should've already been earmarked and set aside to be spent on that stuff, so I don't see why it would annoy you to have to pay it, in any form. I say take whichever payment plan would yield you the most cash in the long run (as the previous poster calculated).

Guest's picture
Aryn

I would pay it all now, too. But yeah, people get angry when they suddenly get billed for something that they know they should have been paying all along. My dad wasn't billed for power for an entire year, then he got a huge bill. No problem, he paid it and called to ask if they could keep him on the annual plan.

But it turned out that it was a mistake. A mistake they repeated the next year. The customers sued on the grounds that it wasn't fair to expect them to pay this huge bill all at once - even though they should have known that they'd have to pay at some point -- and they won! The court ruled the power company could only back-bill for two months and forced the company to send rebates to everyone who'd paid the full amount.

Guest's picture
Guest

I like the policy of my local water authority. "We don't care if YOU didn't get a bill. YOU know when it's due, so if YOU're fifteen days late, YOU get shut off!" People get all mad at them, but the bill is due the same day every month and has been for the last twenty or so years. Btw, it doesn't quite say that on the bill, but it's surprisingly close, lol.

Guest's picture
Banker Chris

I had a similar situation with my son's daycare about 2 years ago... They had a staffing change in the front office and the billing didn't continue as usual and it took them 3 months to get a bill to people. Long story short when the parents got the bills several of them were outraged and so the daycare offered "interest free repayment plans" to soothe them. The downside was that since the daycare had no income for 3 months it had caused a cash crunch for the daycare. Lets face it most daycare/preschools don't bring in the big bucks.

So one thing that you may not have thought of is that if your preschool hasn't had any revenue income this entire time and they very well could have bills to pay. Yes it maybe their own fault for not getting invoices out BUT do you really want the place that your child spends most of their day behind on their lease/water bill etc?

In the end several parents including myself prepaid for a few months of daycare to help out while the other parents took advantage of the "interest free repayment plans" and let the money sit in their savings.

So I'd say pay it all now if you can. The karma will do you good in the long run.

Guest's picture
Scott Houchin

I agree with Banker Chris's comment that you should pay it now. The daycare is going to need that money if you want them to be able to buy supplies and pay salaries in the near term. Just be happy with the interest you should already have earned holding onto the money that rightfully should have left your hands months ago.

But aside from that, this was a budgeted expense, so what happened to the money that you had earmarked for the preschool tuition? Did you go spend it out-of-budget on something else? You should still have that money sitting there, and if you were actually monitoring your spending against your budget, you would have noticed after 1 or 2 months. Even if you do something like have Quicken automatically enter the transaction, you should have seen that transaction being held over once you reconciled your account that second month.

So I don't sound all high-and-mighty, a similar situation happened to me last year, where I allowed some home improvement projects to consume money that should have gone to our church. When I finally realized what was happening, we quickly moved to get caught up on our monthly donations from savings.

Guest's picture
Jasi

I would pay it all now, also.

Payment glitches really tick me off. Even if it seems as though it's in my favor. If I've agreed to a payment plan or a scheduled payment, having that schedule disturbed sets my accounting off balance. I like to track things quarterly rather than monthly.

Guest's picture
gtWise

I have two questions for you:
1) Where did you put the allocated regular payment amount that you dind't use in the months when daycare wasn't charged to you?

You should be able to take the money out from wherever you allocated it and pay it right now. If you spent it then shame on you! You should not feel bad about taking the money out of your home improevment account, it was not meant to be there in the first place.

2) Where do you live where you can get decent daycare for $200 a month?

We're paying over $800 for our 3 year old and we're about to start paying close to $1,000 for our newborn. That's over $1,800 for two kids in daycare, not accounting for the price increase that is about to hit in August.

Philip Brewer's picture

I, too, would just go ahead and pay it.  The dollar amounts of the cash back versus the interest-free installments are both small enough that I don't think either one is significant compared to the hassle of having an on-going billing arrangement with people who have already shown that they can't get it right.

Carrie Kirby's picture

1) To the person who wants to know why it only costs $200, this is not daycare. It's a 3-hour, 4-day-a-week preschool program offered by the Park District of our village. It is cheap even for that, but no, it's not an all-day daycare program.

2) It's also not a private or stand-alone preschool. If it was, I, too, would be concerned that they wouldn't have enough money to run the place and I would be the first to jump to their aid. But since it's part of the village government, it's really more like the water bill situation. The teachers will get paid, the building is a park building, and there aren't many supplies per se.

3) To those who want to know what I did with the money each month, well, I never really had it. I was worried at the beginning of the year how we would come up with the payment in addition to regular monthly bills, and on the months we weren't billed for it, it was a bit of a relief. Once we noticed, that is. We knew we would have to pay eventually, and we did talk to the office about it, but we were always hoping we would have improved our income or managed to lower other expenses before that day came. And basically, it did -- I now make a small income freelance writing, my husband got a small raise, and I've cut our budget. So sure, I spent the money instead of putting it aside for the preschool payments I knew would eventually come. I spent it on groceries, gas and the mortgage. Shame, shame.

You all have convinced me, though: I'll pay the bill up front. Now I just hope they'll process it before my 5% cash back period ends next week.

 

Guest's picture
Adam

Just pay it.

Keep the "savings" in an ING account for a year and get a measly 2.7%, that's whopping... wait for it... $27.

You're going to go through all of that for $27?

Pay it and be happy.