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Automatic Bill Payment Plans – Advantages & Disadvantages

By David Quilty

bills to pay stackMost of us are always on the lookout for ways to cut the amount of time we spend on mundane chores. One of the ways online banking has helped free up our time is through the advent of automatic bill pay. You can set up automatic payment plans for utility, entertainment, household, and other bills. In fact, almost any vendor you purchase goods or services from now offers automatic payment plans.

With an automatic payment plan, the monthly bill is recurrently charged to your credit card or debited from your checking account on a pre-set date every month without you having to do a thing. All my monthly bills, from my AT&T cell phone bill to my car payment to my Netflix account, are all charged automatically to my Amtrak rewards credit card.

It makes life easier knowing that bills are paid on time and in full each month. But while there are definite advantages to signing up for automatic payment plans, there are drawbacks as well. Thoroughly consider the pros and cons and how they could affect your lifestyle before signing up.

Advantages

Automatic payment plans have grown in popularity over the years as a result of many of the conveniences and advantages they offer.

  1. Convenience. By setting all your bills to be paid automatically, you’re not as pressured to keep track of what needs to be paid when or paying them on time. Once an automatic payment plan is established, your bank or credit card will handle the rest.
  2. Rewards. The biggest reason I charge my monthly bills to my travel rewards credit card is to get reward points for travel. All those bills add up to hundreds of points each month that are credited to my Amtrak Rewards account. This means I get at least one free cross-country trip each year. Why not use your bills to help you earn free travel, rewards, or even cash back?
  3. Environmental Issues. By eliminating paper bills and check writing, you reduce your impact on the environment. Not only do you save paper and trees, but you eliminate the carbon footprint left by snail mail. Plus, you don’t have to buy and keep on-hand a constant supply of stamps.
  4. Helps Your Credit Score. When your bills are set up to be automatically paid, you should rarely miss a payment or be delinquent. These are two things that can majorly hurt your credit score. In fact, when credit scoring agencies see that your bills are always paid on time, it helps your credit score by keeping it high or boosting it to a higher bracket.
  5. Less Chance of Identity Theft. If your bills are not mailed to your home and you are not mailing in paper payments with credit card or checking account numbers, you reduce your risk of identity theft. There are risks when paying online as well, but the security surrounding these payments is typically far greater than the security offered by an unlocked mailbox.
  6. Saves Money. Since you’ll no longer have to pay for checks, stamps, envelopes, or gas for trips to the post office, having your bills paid automatically saves you money too!
paid invoice

Disadvantages

In spite of the many advantages, it doesn’t make sense for everyone to set up automatic payment plans. Here are some common reasons why:

  1. Potential Cost. Some companies will charge you a fee, and since automatic payments actually save them money, it’s a very sneaky tactic. Don’t fall for this fee. If your biller wants to charge you, pay them the old-fashioned way and make them process a paper check instead.
  2. Losing Track. With automatic payment plans, it can be easy to forget what gets paid each month and when. This can lead to unnoticed bank errors or mistakes. Even though all my bills are on automatic plans, I still have their due dates on my calendar to remind me to check that they were indeed paid. I, for one, don’t want to be liable for someone else’s mistakes.
  3. Overdraft Fees. You still need to make sure you have enough money in your checking account to cover automatic payments. Otherwise, you will incur enormous fees via bank overdraft charges. There’s not much convenience to that, is there? This is a big reason why I use my credit card account to pay my bills. Also, if you just pay your fixed expenses (e.g. Netflix or car payment) automatically rather than any variable ones (e.g. utility bills or cell phone bill), you will know ahead of time exactly what your monthly charges will be.
  4. Stopping Payments. Automatic payment plans can be set up in a matter of minutes. But stopping them can be much more difficult. Sometimes you have to notify your bank and your merchant, and you may even need to do it in writing. Still, they might not get the message the first time around, so be prepared to closely monitor payments if you’re transitioning between pay accounts. For example, just last week I had my credit card number stolen, and I had to quickly get a new card and then change all my automatic payments to the new number. This was a time-consuming endeavor. I’ll be watching these payments closely to make sure they get paid from the right account before the due date.
  5. Running Up a Credit Card Balance. If you aren’t careful and don’t pay off your bills, you could be left with credit card debt you cannot afford. To avoid this, add up the bills you have automatically paid and send the full amount to your credit card each and every month.

Final Word

For me, the convenience of having all my bills automatically paid definitely outweigh the risks. It saves me time and money while rewarding me for doing so. But you do need a certain amount of discipline to avoid trouble with automatic bill pay. For example, it’s not a good idea to just “set it and forget it.” If mistakes occur, you could be held accountable. Plus, good financial habits are rooted in an awareness of what you’re paying and when.

Do you have automatic payment plans set up for your monthly recurring bills? If not, what are some of the main reasons why you avoid it?

(photo credit: Shutterstock)

David Quilty
David Quilty is a freelance writer living outside Santa Fe, NM. After burning out working in the entertainment field in Los Angeles for many years, David decided to strike out on his own and follow his passions for writing, web design, politics, and green living on a dirt road in rural New Mexico.

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Comments

  • Rob P.

    I have had experience with them and pretty much don’t like them.

    Giving permission for someone else to dip into your bank account automatically opens up a whole host of other potential problems.

    1. My insurance company. I specifically said the 20th of every month. Not the 18th. They tried on the 18th (perhaps a keying error on their part, who knows). I get NSF 1 from them, then NSF 2 and 3 from other people expecting money, because the first NSF charge left my chequing account without enough to cover the other payments.

    2. I get paid weekly. Sometimes it’s more convenient to write a cheque for the 1st of the month, knowing they can clear it until the 2nd, when I actually get paid.

    3. The issue, as you mentioned, of STOPPING payments is so ridiculously difficult once you sign the automatic debit form, that should you receive substandard service and decide to dispute it unfortunately within a couple of days before a charge is going to be applied to your account, you are out of luck. You get the privilege of paying for another month of service.

    I cancelled the insurance account by the way, and was reimbursed the NSF fees, but that still didn’t fix my three NSF charges on the credit report. That required time.

    • David

      Rob

      You’re right–these things are a lot easier to sign up for than they are to get out of.

      I must admit I still have them on two of my accounts, but they are accounts that are fixed charges each month (my cell phone and my gym membership).

      You still need to be cognizant of the bills though and check them for accuracy.

      Should you find an error, you can still go back and fix it even after its paid.

      But its a big “Beware” when it comes to these things.

      Thanks for your input!

  • Rob P.

    2. I get paid weekly. Sometimes it’s more convenient to write a cheque for the 1st of the month, knowing they CAN”T clear it until the 2nd, when I actually get paid. I’m sure the smart people already figured out that was a typo.

  • Windy City Woman

    I don’t do this with my credit cards, but someone warned me about this. If you have your credit card payment made automatically, make sure it goes to a different month’s bill each month. Otherwise, you might end up with 2 payments credited one month, and none the next. Oops!

    • David Bakke

      This is another great point.

      This can happen, and I’ve also heard of some credit card companies “switching” your date to make you late on your payment and charging you interest.

      Thanks for joining in!

      • Rob P.

        I never choose automatic payment methods any more, but especially with credit cards. Online banking is amazing, it comes out of my account when I want, and not before I choose to make the effort to pay the bill.

        They all want the right to have access to your bank account., but this is one of the few areas we as consumers still have some important say. As a consumer, I can say rightly or wrongly (as you will see), that I will pay the bill, maybe early, or maybe late. In either case, the proof of payment exists at my bank, on the date the payment was made.

        Credit card companies are not allowed to change dates in Canada. If your billing date is the 25th, then that is the date FOREVER. It might not be a very competitive environment, but would they risk a fine of a few thousand dollars for a hundred dollar payment? That wouldn’t be very profitable.

        Of course, with respect to my American friends, there was never a case in Canada where someone could get $75,000 in credit on $30,000 in income. The seller sells at a risk, as well as the buyer who purchases the product. Here, no bank would issue liar loans, or credit, and then try to recoup it later. It’s so much easier to play the game straight from both sides.

        • David

          Rob

          I particularly like your comment about being much easier to play the game stragiht from both sides.

          Its just too bad that you cannot assume that banks will do this on their end.

          Thanks for your relevant feedback!

      • Art

        By law, 2010 I think, credit card companies cannot change the due date from month to month.

  • http://moneycrashers.com Shari O

    David – Got a question for you. I have had an escrow account with a local credit union for about 2 years now, and they recently sent me a letter that says, “…..(name of credit union)……Requires all escrow accounts to be set up on an automatic payment. Please stopy by the Credit Union to make the appropriate changes.” Is this legal? Once I have signed a contract to make the payments on a specific day each month, can they legally change it to where I have to set up an automatic payment? Just wondering if I can legally fight this. I too am very leary of allowing anyone access to an account where they tentatively could dip into it when they decide to change something else – like the payment date or escrow payment amount – which we all know can fluctuate on an annual basis. I appreciate any help or advice you can give me on this.
    Thanks,
    Shari

    • David Bakke

      Shari

      That’s the first I’ve heard of that one. Although I am not an attorney, all research that I did on the topic tells me that they can’t do it.

      Have you contacted the credit union directly to inquire? if not, this would be my first step. I’d speak to someone face-to-face if possible, expressing your concerns.Maybe don’t come right out and say you’re going to fight it, but take a more tactful apporach at first.

      I would see what they say, and take it from there.

      I’d hate to see you have to spend money on an attorney–but if you feel that strongly about it, then I would take that route next.

      But I’d imagine you won’t have much of a fight on your hands as I doubt that credit union would even want to deal with it, and they’ll probably let you opt out.

      Hope that helps–let me know if I can be of any other assistance, and thanks for commenting

      • http://moneycrashers.com Shari O

        Thanks for the quick reply and for making yourself available to people such as myself – I’ll keep you posted on the outcome.

        • David Bakke

          Shari

          Look forward to it, and good luck!

  • http://money4thisnot4that.com/ Amy

    I do a lot of auto pay, but my mortgage company started charging so much I now mail the check. What a pain. They might end up winning that one eventually, but it makes me so mad. $5 to process a payment??? I don’t think so.

  • lisalisavi

    Reasons I don’t set up automatic payments:
    1. The possibility of losing track of what I pay/paid.
    2. It takes away a level of me having control of actually paying my bills.
    3. Should I die while I have these recurring bills, they can continue until all funds are depleted. Not that it would matter to me per se, but who wants to pay for something you don’t need or are not able to receive. Needless to say, it could be a nightmare for the beneficiary of the account.

  • Kelseyhorner

    I love having everything set up on automatic bill pay. That being said I’ve been running into a lot of issues lately. I recently decided to open up a separate checking account — one for bills with fixed monthly amounts (car payment, student loans, rent, etc.) and the other for other bills and expenses such as my credit card. I have the total amount of all of my fixed bills direct deposited into that account, and the remaining amount deposited into the other. You would think that this would make things easier, but since switching things up I’ve paid my car payment twice (resulting in an overdraft), set up a bill that I thought would hit before my pay date rather than after (resulting in another overdraft), and tried to transfer money into my account from another twice (resulting in a third overdraft).

    Once you have a system working for you, and have a nice cash buffer set up in those accounts, it’s a lot easier to set it and forget it rather than mess with it all the time. Check up on it, but unless something is wrong DO NOT TOUCH. I learned this the hard way.

  • Art

    Being a senior, I get paid once a month. I pay all bills on the 1st online. It takes about an hour and I know my balances and that they are paid. I have two other bills that I pay on the 5th. All this is easy, simple and done for the month, now worrying about any bill.

  • http://javierdericott.spruz.com/ Vernon Groston

    I’ve done a lot of research on the potential pitfalls of automatic payments and online bill pay in general. While I understand the risks – lost payments, delayed payments, additional fees – I’ve made the personal decision that the convenience of paying online outweighs the risks… as long as you do it the right way. I’ve learned from my past mistakes by streamlining my online accounts.

  • Terb83

    I just want to know what companies get out of it. Most seem to really want you to sign up for automatic payments. Ex: Verizon offered me a $20 debit card if I would sign up. Anyone have any guesses?

    A google search for that question is what led me to this blog. I may have to keep checking it out. :)

    • Guest

      I can partially answer that because I’ve worked for a company that requires it. AutoPay cuts down on the “I didn’t know my bill was due and please refund the late fee” phone calls that can clog up call centers right after bill due dates. It also guarantees that the company gets paid when they have a lot of low credit customers.

  • VolumeBlind

    BIG disadvantage that you left out- With auto payment of utilities;
    They can take the money FAR in advance of its actual due date. Example: Vonage currently will take the payment due on the 15th of the month on the 26th of the previous month. (this is actually 20 days before it is actually due) This practice should be illegal.

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