Wealth is Good
Cash Flow Is Better

Swiss American psychiatrist Elisabeth Kubler-Ross discovered that we all tend to go through five stages of grieving: denial, anger, bargaining, depression and acceptance.  These stages were originally associated with people who are suffering from terminal illness, but since then they’ve been found to apply more broadly to other types of loss, including financial loss.  And not just financial losses of the Bernie Madoff magnitude but even to relatively small setbacks like late payment penalties and bounced check fees.

Sounds like a stretch?  Not really.  Here’s why:  Those dreaded penalty fees trigger emotional responses – feelings of frustration and loss of control over our finances.  Here’s how it plays out:

Stage 1: Denial – “I can’t believe I received this outrageous penalty fee!”

Stage 2: Anger – “I could have really used the money they’re taking from me.  It makes me so angry!”

Stage 3: Bargaining – “Maybe I can work out a deal with them to waive the fee this one time.”

Stage 4: Depression – “They just won’t budge.  I feel so helpless.”

Stage 5: Acceptance – “Well, I guess I’ll just have to accept not having control over the situation.”

Fortunately, tools are available to help you steer clear of penalty fees, giving you back a little more control over your finances.

Time Your Bill Payments with Online Precision

If you haven’t yet set up online bill payment with your bank you’re missing out on a great tool to precisely control the timing of your payments.   No more guessing when to drop a check payment in the mail, hoping it will reach the billing party before the deadline.  In fact, no need to even visit a mailbox.  And no more postage stamp purchases.   Couldn’t be much simpler or more convenient.

With online bill pay you can maximize the “float” in your checking account by waiting to pay a bill until a day or so before its due date.  You’ll receive a written confirmation from the recipient when the payment was submitted.  If that recipient is a credit card company the confirmation will help ensure you avoid late interest charges or, worse still, a hefty late payment fee and APR penalty.  Not to mention damage to your credit score.

Practice grief avoidance.  Use online bill pay

and a checking account credit line

to make penalty fees disappear for good.

Before making the effort to set up online bill pay with each of your creditors, first make sure your bank doesn’t charge you for this service.  To avoid a charge, most banks require keeping your primary checking account with them.  That’s fair.  But if they charge a per-transaction fee (sometimes as high as 30 or 40 cents per payment) it might serve you well to shop for another bank.

Create a Buffer Against Bounced Check Fees

Now let’s turn to one of my favorite day-to-day cash flow management tools: a checking account line of credit.  If used properly, this resource can help to ensure you never again see the dreaded words “insufficient funds” on your bank statement – or incur the hefty bounced check fees.   Those fees now average $30.*  And that’s just the amount your bank charges you.  More often than not, the recipient’s bank will also charge a similar amount.   Now we’re up to $60 per mistake.  If it’s one of those infamous multiple bounced check events, the total penalty can easily climb to over $100.

To help regain the upper hand over these cash flow morale-killers, see if your bank offers — and you qualify for — a credit line tied to your checking account.  Choose a modest amount, say $3,000.  Then if for any reason your checking account balance falls below zero you’ll have peace of mind knowing that you’re covered.  Instead of a bounced check fee your bank will charge you interest on the amount drawn down from your credit line.  If you repay that amount quickly the interest charge will be very small, usually a dollar or so.

One caution, though:  Don’t think the extra $3,000 is yours.   I once made that mistake.  Knowing that the credit line would cover me, I became less and less concerned about keeping a low or even slightly negative balance.  Soon my balance was almost always negative, sometimes even dropping close to the credit limit.  And that’s when I found out that you can still bounce checks with a credit line.  Those bounced check fees were just as painful as the pre-credit line ones.

Oh, and don’t confuse a checking account credit line with checking account “overdraft protection.”  They’re not the same!  With overdraft protection the bank might cover an insufficient fund transaction but you’ll be charged – usually around $30 – for the favor.

So practice grief avoidance.  Use online bill pay and a checking account credit line to make penalty fees disappear for good.

*  Source: Bankrate’s 2010 Checking Study

Keith Whelan is Cashflownavigator's founder and author of the "Wealth is Good, Cash Flow is Better" e-booklet. He is a graduate of Columbia University Business School, teaches at Rutgers University, and has over 30 years experience in the banking and financial services industry. Keith, his wife Cindy, and their two sons live in New Jersey.