An automatic bill payment is a recurring and predetermined withdrawal from your account to pay a bill. You may need to schedule automatic payments through your checking account’s bill pay service, but in general, you will sign up for automatic bill payments with the merchant service provider.
Automatic bill pay can be used for numerous services, from monthly subscriptions to utilities and mortgages. Autopayments have both advantages and disadvantages that you need to understand in order to assess whether they are right for you and your personal budget.
How Do Automatic Bill Payments Work?
You may have numerous bills to keep track of every month: rent, credit card bills, phone bills, utilities — perhaps even student loans, car payments, or a mortgage. It can feel overwhelming to ensure you are making your payments on time, and can reflect poorly on your credit score if you don’t.
Knowing how automatic payments work, and furthermore, the Consumer Financial Protection Bureau’s protections when it comes to automatic payments from your debit account can help you use auto bill pay as a tool for your financial portfolio.
Automatic bill payments can be scheduled to occur once or on a recurring basis. Typically, you set up automatic bill payments with the company or service provider by filling out a form and authorizing them to withdraw from your account to make a scheduled payment. Your bank may also offer a bill pay feature in which you give permission to your bank to send payments to a company.
It is important to be careful about who you give your bank account information to. Make sure that you:
- Verify the company: Before making any authorizations, ensure that the company is legitimate and credible.
- Know your rights: Companies cannot force you into using automatic payments. Be wary of any company that is pushing you to take part in their automatic bill pay service.
- Pay attention to overdraft or insufficient funds fees: If you miscalculated your account balance or forgot to check before your bill payment was withdrawn you may face overdraft fees from your bank, or late or missed payment fees from the merchant.
- Review the terms of agreement for the automatic payment: Any institution you authorize to make automatic withdrawals will provide you with a term of agreement form that will include the selected dates and times of withdrawal as well as the total amount they are authorized to withdraw.
- Look for monthly withdrawal fees: Some institutions and companies charge a withdrawal fee for every authorized automatic withdrawal. Be sure you are aware of the cost of any monthly fees, and ask if there are any other types of fees you should be aware of.
There are federal laws put in place to protect automatic bill payment users, including the right to stop automatic payments. It is important to note that automatic bill payments should be used as a tool when you create your personal budget, not a crutch. It is essential that you continue to track your payments and take a hands-on approach with your financial health.
Advantages and Disadvantages of Automatic Bill Pay
There are benefits and drawbacks to using automatic bill pay. Consider the pros and cons below.
- Payments are easy to automate, and you no longer need to spend the time making a payment each month.
- Automatic bill payments can help you avoid late fees.
- Automatic bill payments can help you improve your credit score.
- Automatic payments may be more secure due to encryption techniques that banks use to secure information online.
- If you don’t have enough money in your account, the payment can bounce, or you may face overdraft fees.
- If your payment bounces, you may end up with a returned payment or late payment fee.
- You may miss fraudulent or accidental charges if you are not monitoring your monthly statements closely.
- Some automatic payments may be difficult to cancel.
Tips on Using Automatic Bill Pay
Be selective when it comes to choosing which bills you are placing on automatic bill pay. Utilizing this service wisely to build your credit and maintain your budget is helpful when you are planning your financial strategy. However, it is easy to lose track of how many automatic payments are coming out each month if you are not closely monitoring your spending.
Review your online bills and where your money goes each month. Consider making cuts to subscriptions you don’t use, or choose not to add monthly subscriptions to your automatic bill payments. Set up service alerts near your due dates so you remain aware of when your money will be withdrawn.
Be sure to review all information with a merchant or service before signing up for automatic bill payments, including the cancellation process, monthly fees or extra charges. Finally, remember that incorporating automatic bill pay is part of your financial plan, not the plan itself.
Image source: https://pixabay.com/
Want a FREE Credit Evaluation from Credit Saint?
A $19.95 Value, FREE!