There are advantages and disadvantages to using automatic bill payments. There is a time and place for them and then also times when they aren’t the best option. They are a great option for people that want to streamline their bill payment process each month and avoid late payments and incur fees.
What is an Automatic Bill Payment?
Automatic bill payments are automatically sent to the biller, such as an auto loan payment, home loan, subscription or other bill that is automatically drafted from your bank account or charged to your debt or credit card.
When enrolling in automatic payments you are authorizing the merchant to withdraw money from your account and apply it to your open bill.
What Bills are Good for Autopayment?
- Mortgage or Rent
- Subscription services – such as Hulu, Netflix, Spotify, etc.
- Loans – such as student loans, personal loans, auto loans
- Auto Insurance
- Health Insurance
- Cellphone Bill
- Curated Subscription Boxes
- Gym Memberships
There are many types of items that you can set up for autopayment.
How Does Autopayment Work?
To set up an automatic payment you must choose the method you want to use for your payments. You can make automatic payments via ACF (Automated Clearing House), EFT (Electronic Funds Transfer) from your bank account. You can also use a debit card which will pull the funds from your checking account or use a credit card.
You can set up payments directly with the merchant and set a specific payment method and be charged automatically each month. This is a good option if the amount changes each month.
You can also use Bill Pay through your bank. This is where you sent up the merchants you want to pay regularly and the bank will automatically issue payment to these merchants based on the date and amount you have dictated. This is a good option for charges that are a set amount each month such as mortgage, auto loan and the like.
When you set up an autopayment the merchant will charge your card or withdraw the money from your account based on a certain interval or date that you have authorized.
What are some Advantages of Automatic Payments?
Set up. Setting up autopayments is simple to do with many merchants using your bank account or credit or debit card.
No Late fees. Setting up autopayment puts your bills on autopilot and you don’t have to worry about missing the due date. Your payment will be automatically charged to your card or withdrawn from your bank account. You won’t be hit with late fees for a missed or late payment.
You save time. You won’t have to manually pay your bills, go to each merchant’s website and pay the bills or spend time mailing in your payment each month.
Helps your credit score. With automatic payments your bills are paid on time, and as you build payment history and on time payments it helps your credit score. For example, each month that you pay a credit card or loan payment on time it strengthens your payment history and credit score.
Manage your spending. Having automatic payments in place may help you manage your budget and spending. You will know exactly how much money is going out of your account and when each month.
What are some Disadvantages of Automatic Payments?
Overdrafts. If you aren’t keeping track of your bank account and have an automatic bill payment process you could overdraft your account. It is important to keep any eye on your bank account balances, I personally do this daily.
Insufficient Funds. If you have an item that is returned due to insufficient funds you could be facing high fees and even multiple fees.
Keeping information up to date. If you are using your debit or credit card for your automatic payments you will have to make sure to update your card information with the new expiration date and CVV number when the card expires. If the card expires your automatic payment won’t be processed and you could incur a late or missed payment.
Paying for unused services. If you have services set up on autopayment but aren’t using them, you could be still paying for them even though you aren’t using them.
Once I Set Up Automatic Bill Payment, Now What?
It is important to still manage your bills and keep track of your automatic payments. You will still need to keep track of them in your check register. I personally like using a spreadsheet to keep track of all funds going in and out of my account.
In doing this I can make sure and keep track of my money, where it is going and make sure I am not overspending. It also helps so I don’t get hit with an overdraft because I didn’t have the funds available for when the automatic payment processes.
It is also helpful to keep a list of the bills that you have set up on autopayment, and the date that they are to process each month. You can also add the dollar amount to your list so you know how much, to whom and when a payment will be drafted or charged to your account.
You can also set up alerts via email or text message for many automatic payments as reminders that the upcoming autopayment is going to be processed. This is a great time to review your bank account and make sure you have the funds to cover it.
When is it Not a Good Idea to Use Autopayment?
While using autopayments can make things easier and help you avoid late payments or fees, they aren’t always the best option for everyone.
There are times that autopayment may not be the best option, here are a few examples:
- You are self-employed and you don’t have a regular paycheck each week or month.
- You aren’t good at keeping track of your income and expenses and having a Flexible Money Management Plan in place.
- You don’t keep a cash buffer in our bank account to cover unexpected expenses or possible automatic payments that you forgot to log in your check register.
Automatic Payment Safety Tip
Before you set up an autopayment, make sure the company is one you know and trust. Autopayments are a safe and easy way to pay your reoccurring bills, but you don’t want to give your personal information, bank or credit card information to a merchant you don’t know or trust.
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