Posted by: Arti Bhargava on Jul 13, 2020, 6:30 AM IST
Young professional Rachit tends to procrastinate when it comes to money decisions, despite a comfortable income. His wife wants him to address this inability to stick to payment schedules for his dues and expenses. These include payments of credit card dues, bills and insurance premiums. Rachit is not bothered as he does not see how any payment delay can impact his financial situation. Is he right in thinking that way?
Rachit’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. This in turn will translate into high cost of borrowing and stiffer terms when he will need a loan. Rebuilding credit score takes a long time and he should take it seriously, since his payment delays have nothing to do with the shortage of funds but with the way he deals with his money. The other serious financial consequence Rachit may face because of delaying financial decisions is of losing insurance protection. If the premiums are not paid or renewed on time to keep the policy in force, the insurance companies are not liable to provide cover, leaving him open to the risk of shouldering large expenses and his dependents unprotected.
There are costs and penalties that Rachit will be bearing for delayed payments that can add up to quite a sum. He should see this as the funds that could otherwise have been invested to contribute to his goals or even spent on things he would have liked to buy. Penalties may also take the form of benefits forfeited. For example,he might lose the benefit of no-claim bonus on general insurance policies and accumulated reward points on cards, depending upon the term of the product. Seeing his past records, insurance companies may refuse to provide cover or may charge a higher premium to provide the cover and credit card companies may offer a lower credit limit. All of this will eventually add up and have an impact on his long-term financial situation.
On his wife’s insistence, he has automated his investments using SIPs. However, he must realise that it is important for him to automate his expenses along with his investments. He should sign up for the bill payment services provided by most banks, register all his service providers so that he can make the payment process easy and less prone to delays. For insurance premiums, he should opt for the annual payment option to minimise the chances of missing out on the payment. He should keep his contact details with his service providers updated so that he can get the intimation of dues and take timely action. Taking corrective actions immediately will not only protect his current situation but also help redeem his past mistakes over time.
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