If your goal is to simplify your finances one thing the experts tell you to auto pay all your bills. That way you’ll never have to remember your payment due dates, never have to mail a check and never have to remember whether you paid that utility bill or not. If you have online banking then putting your bills on auto pay should be a real snap. You might even be able to have your statements sent to you electronically so you would never again have to worry about filing them or ultimately shredding them. Putting your bills on auto pay would certainly help simplify your finances but should you really put all of them on auto pay?
The pros
The biggest pro of putting your bills on auto pay is, of course, convenience. As noted above when your bills are on auto pay you’ll never have to wonder whether or not you’re late on a payment or when your bills are due. When you fully automate your bill paying you’ll had made sure that your bills will be paid when they’re due and in full – assuming, of course, that you have a sufficient amount of money in your checking account to cover them.
You might also earn some nice incentives by signing up for auto pay. This is because there are companies that will reward you for paying them automatically. As an example of this, Nelnet will cut the interest rate on your loans by 0.25% when you agree to pay it automatically. This may not seem like a lot but could actually add up to many thousands of dollars over the life of your loan.
Third, paying your bills automatically can help your credit score because it should mean you never miss a payment. And missed payments can hurt your credit score fairly seriously. In fact, missing a single payment could ding your credit score by 60 points. Miss two and your credit score could be reduced by 120 points, which could drop you from having a good credit score to a poor score. In either event this would ultimately cost you money because you’d end up paying higher interest rates. This might even increase the cost of your auto insurance premiums.
The cons
There’s no question but that automatic bill pay can make your financial life simpler. However, there are times when it might not make good sense.
One of these is if you need tight control over your monthly spending. If you’re living from paycheck to paycheck then paying your bills manually could make better sense as this would give you greater control over how you allocate your funds and keep you from going into overdraft in a tough month. This would also help you keep money available for crucial expenses such as food and rent.
A second type of bill you might not want to put on auto pay is one that varies monthly. An example of this might be your utility bill, which could vary considerably between winter and summer – especially if you have air conditioning. If you were to put it on auto pay and had a very hot June or July this could substantially mess up your monthly finances. On the other hand, if you have bills such as a cell phone bill or your rent that remain the same from month-to-month they would be great candidates for auto pay.
A third consideration is that if you’re not careful you could end up paying for things you didn’t intend to buy. For example, it’s never a good idea to set up auto pay for temporary services or memberships. There are instances where if you were to try to cancel or change the service you could end up in customer service hell. Suppose you were to sign up to try Amazon’s Prime Service free for a month. If you forget to cancel you could find yourself hit with an unpleasant surprise – a $99 yearly fee.
Some other things to consider
When you sign up with a company for auto-pay this tells your bank to automatically approve requests to withdraw money for that company. The Federal Trade Commission says that you should only do this with those companies you trust and know. If not, you could wind up paying for stuff you didn’t want. It’s also possible that automatically paying your bills would make you more susceptible to having your identity stolen. While this may or may not be true it’s always a good idea to carefully read the company’s privacy policy and make sure that it will encrypt all of your transactions digitally.
As we have seen from the data breaches that recently hit Anthem Blue Cross/Blue Shield and Target there is no such thing as a totally safe website. However, automatic bill payment is usually much safer than mailing your payments physically. This is due to the fact that the postal system is more vulnerable to tampering and interception.
The net/net
Automatic bill payment may not be for everybody but it is a very convenient way to pay bills for many consumers – making sure their bills are paid in full and on time. It can save money as well as time. But most banks now allow you to set up your bills to be paid online but not automatically. While this puts the burden of paying your bills back on your shoulders it does provide the convenience of paying your bills electronically but allows you to keep control of how much money goes out of your of your account each month. We have a number of bills that vary from month to month. We have it set up with our bank so that we can pay them online. When one of these bills arrives in the mail we note its due date and then immediately go online to our checking account and arrange to pay the bill on that date. This eliminates the need for us to remember to make the payment as well as the annoyances of having to find a stamp and to get the bill in the mail in enough time for it to make its due date. We view this as sort of the best of both worlds.
Automate your saving, too
In addition to putting your bills on auto pay it’s also a good idea to automate your saving. This short video explains how to do this and why it makes really good sense.
