Here's when you should and shouldn't pay in advance

Millions of Americans pay their bills by writing checks or setting up automatic withdrawals from their bank accounts on a monthly basis.

Many of those same people may also be spending more than they need to by missing the opportunity to get a discount for paying in advance.

Payment in advance: A money-saving strategy that works (sometimes)

We know what you’re probably thinking: “Payment in advance? Why would I do that?” Yes, paying in advance can be risky in some cases, but there are actually some very sound reasons why you should consider it.

The #1 reason is because there's often a money-saving incentive — but it's not a strategy that works for all your bills.

Here are bills you should pay in advance

Money expert Clark Howard says, "Usually any kind of insurance premium is worth paying in advance — if you can afford to do it."

Among other kinds of insurance you might consider paying in advance, this would definitely include the big 3:

• Home insurance
• Auto insurance
• Life insurance

“For life insurance, you can get a big cut,” Clark says. “For example, an entrepreneur might pay one lump sum for a policy and they’ll get a big discount by paying it all up front.”

Some other businesses, like pest control services, orthodontics programs and the like will give you discounts for paying up front, as well. But as we mentioned at the outset, not all advance payments are equal. Make sure you are dealing with a reputable company if you’re paying up front.

What not to pay in advance

There are some times that you absolutely do not want to pay in advance, even if there is a discount involved. Here are a few:

• Contractors: While they may offer a discount for upfront payment, you may not be pleased with the end result. Pay as you go or when the job is complete. Disreputable contractors make off with advance payments all of the time.
• Hotels: The vast majority of hotels may require a deposit but many do not require payment in full to book a room. And they do not often offer discounts for advance payments. Why not settle up at the end of your stay?
• Utilities: Don't pay your utilities in advance. Municipalities, sewage and power companies make billing mistakes all the time. Check your bill for accuracy before you pay.

Use due caution when deciding whether to pay in advance or not

If a company goes bust and you’ve paid in advance, you may be out of luck.

Clark says considering how long a company has been around is no sure way not to lose your shirt. After all, how many of us still have Sears or Toys R Us gift cards lying around?

“The danger with anything is that if you pay in advance and they fly the coop, you’re out of luck,” he says.

Always prepay with a credit card — not debit

The chance that a business may flop is all the more reason you should always use a credit card for advance payments.

The consumer protections afforded to credit card users — especially if a product is not delivered or a service performed — are much greater than they are with debit cards or checking account drafts.

Final thought

The takeaway here is to pay for things in advance when it makes sense to do so. And remember these parting words from Clark:

“There’s always a danger when you prepay, no matter how much you save.”

More stories you might enjoy from Clark.com:

• Automatic bill pay: What you need to know
• How to improve your credit score by 100 points in 30 days
• Best online banks: Free checking and high-interest savings accounts

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