Automatic payments – regular and recurring transfers from your bank account to settle monthly bills – can have their advantages. But misusing this feature at your bank or credit union could end up costing you more.
It is convenient. Instead of visiting several different websites or mailing invoices at various times during the month, you can automate the bill payment process. If you do it through your bank, your invoices can be organized and viewed in one place. And some companies will send you an email to let you know that they are about to accept a payment. In a sense, instead of you going to them, they come to you.
It can improve your credit score. Your payment history is the most important component of your credit score, and FICO reports that negative marks on your credit history can fade over time when you are consistent with payments. With automatic bill payment, you can stay on time and avoid being late.
It is safe. Data breaches are news, but online banking is no less secure Than leaving a check in an envelope in an unguarded mailbox. In fact, your accounts may be better protected through the encryption techniques banks use online to protect customer information.
You risk overdraft fees … Some payments vary in amount, and if you’re not careful, your account may be overdrawn. Overdraft fees vary per institution, but the median is $ 34. Watch your bank account and have enough to cover all your automatic payments.
… and late fees. Despite being called “automatic,” a payment still takes time to process and reach a merchant or service provider. Confirm how long payments take to arrive so you can set payment dates accordingly and avoid late fees.
They could make a costly mistake. What if your phone company accidentally withdraws your monthly payment twice? Or does your cable provider add a zero to your balance and take out $ 850 instead of $ 85? Such errors, while rare, can occur and correcting them takes time and effort.
How to Use Automatic Bill Pay Wisely
Register in the indicated place. Is your bill for the same amount every month or does it vary? The answer should determine where you register for automatic payments.
For bills that are the same amount every month, use your bank’s automatic payment to keep multiple accounts in one place.
For accounts where your balance changes every month, like a credit card, it’s best to sign up for automatic payments directly through them, so they take the full amount owed.
Set up electronic alerts. Some banks and credit unions offer email or text message reminders that let you know when your balance is low or when a bill is due. Think of yourself as a manager. You’re delegating the task of paying your bills, but you still want to know when something comes up that requires your attention. Alerts will help.
Don’t take an out-of-sight, out-of-mind approach when it comes to automatic payments. Although this service is intended to simplify your life, it can have the opposite effect if you are not careful.