Paying bills individually can take a few hours of your time, whether writing a check or completing transactions online. For this reason, automated bill payments seem more convenient. Yet auto pay should not be a set-it-and-forget-it solution.
Although it takes less time, an active approach to managing your finances may be more beneficial in certain cases. Here’s what you should consider.
Pros of Auto Pay
1. Convenience
No longer having to set aside time to make payments or keep track of due dates is the primary reason to start auto paying bills. You simply set up payment information and a predetermined amount is withdrawn on a specific date each month. At a minimum, this process helps you pay bills on time.
2. Fewer Late Fees
3. Improved Credit Score
Perhaps one month, you were late paying your student loan or electric bill. Yet forgetting or delaying a bill can show up on your credit report and cause your score to drop.
Payment history for credit cards, mortgages and other loans accounts for roughly 35 percent of your FICO credit score. The more payments you miss, the lower your score. This habit can affect your ability to get a loan, interest rates, employment and insurance rates.
Auto paying your bills acts as a safeguard for your credit history, ensuring that you regularly meet the deadline. As a result, your score better reflects your financial health.
4. Security
Due to the rise of identity theft, how you pay bills has become a more challenging decision. Sending a check in the mail increases the chances a fraudster could access your personal and
financial information. Your name, address and account numbers can be used to open new lines of credit for someone else.
With online auto payments, improved encryption reduces the risk of information being intercepted and provides a more secure experience overall.
5. Less Paper
Going paperless helps you be more sustainable! Auto pay sends a notification of the amount to be withdrawn from your account on a certain date.
Cons of Auto Pay
1. Additional Fees
Despite the many benefits, auto pay customers can still incur penalties in a few scenarios:
- You did not pay the correct amount. If you failed to notice a lack of funds in your checking account or the bill was higher than what’s normally withdrawn, you might be faced with a fee on your next bill.
- There’s a processing delay. As a result, even routine payments always appear late and you get served with a fee the next month.
- Insufficient funds in your account leads to an overdraft fee.
- Your account or card number was changed, but you did not update the company withdrawing the payment.
2. Not for Inconsistent Cash Flow
Auto pay is not ideal for those who live paycheck-to-paycheck or have an inconsistent flow of income. If you find you don’t have enough money each month to pay your bills, this can result in a bounced check, missed payments or an overdraft fee.
3. Not Ideal for Variable Payments
Auto pay tends to work best for set monthly payment amounts, so you know when and how much will be withdrawn from your account. Yet not all bills follow this structure.
Oftentimes, you run into this issue with utility and credit card bills or fluctuating insurance premiums. In these scenarios, auto pay may overdraw your account or you continue making the minimum payment and your debt grows.
4. Easy to Forget
Enrolling in auto pay can lead to an “out of sight, out of mind” mentality. You might forget about a bill entirely, which is more likely to happen for smaller costs, like a gym membership or streaming service only used on occasion.
To avoid this, get in the habit of checking what and how much is being withdrawn from your accounts each month. Remember to update your account if payment information changes or cancel unused subscriptions altogether.
5. Hard to Make Updates
Stopping automatic payments can be a challenge. Certain services and companies let you halt payments, update the billing structure or close your account online, while others require you to speak with a customer service representative. You may find:
- The payments fail to stop, even after you’ve requested to cancel
- You get double-billed in the same month
- The bills are updated without your consent
- You have to make multiple calls to close your account and continue to get charged in the meantime
Tips for Managing Automatic Bill Payments
To make the most of auto paying your bills:
- Choose auto pay when you know the monthly amount won’t change
- Keep track of your account details
- Use auto pay through your bank to pay bills for multiple accounts
- Make sure you’re receiving email or text reminders for automated bills
- Regularly review your accounts to ensure all bills are paid on time and the correct amounts withdrawn
To spend less time manually paying your bills each month, manage your transactions with Ion Bank’s Bill Pay, iMoney and Popmoney® services. To learn more, contact us today.