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