Automatic bill payment allows you to transfer money from your bank account, credit union or credit card to a creditor, service provider or other vendor without having to initiate the payment yourself. Automatic payments can usually be set for whatever time frame a bill is due – weekly, monthly, quarterly or even annually.
If you are staying home due to COVID-19 restrictions, it might be good to invest some time in determining if auto pay can be a helpful tool for managing your finances. However, it’s important to consider the advantages and disadvantages before signing up:
Advantages of autopay:
- It’s convenient. Instead of visiting multiple websites or keeping track of paper invoices that arrive at various times during the month, you can automate the entire bill-paying process. If you do it through your bank, your bills can be organized and viewed in one place.
- You won’t have to remember due dates: Once you set up your payments, your bills will be paid at the predetermined time – eliminating stress and worry.
- You can save money: By eliminating the risk of missing payments, you’ll avoid late fees as well as protect yourself against service interruptions or possible damage to your credit score. In addition, some lenders offer interest-rate reductions for customers who set up automatic payments. LINK: https://www.creditkarma.com/advice/i/automatic-bill-payment/
- Your credit score may improve. Your payment history is the single biggest component of your credit score. Automatic bill pay helps you stay consistent and avoid delinquency, which can improve your credit score over time. LINK: https://www.nerdwallet.com/blog/banking/automatic-bill-payments-pros-cons/
Disadvantages of Autopay:
- You might overspend: If you spend without factoring automatic drafts into your bank account balance, you might run short of what you need to cover your preset bill payments.
- You risk overdraft and/or late fees: Because there is no safeguard in place to keep your account from being overdrawn, you risk getting hit with overdraft fees. Also keep in mind that bill payments take time to process, so set up payment dates accordingly to avoid late fees.
- You can lose touch with your finances. When you pay bills automatically, you never have to look at the bill or write a check. Not checking bills for accuracy or monitoring your bank account balances could give you a false sense of financial security.
How to Use Automatic Bill Pay Wisely
Using automatic payment is ideal for bills that come due weekly or monthly, and for a predictable amount. For example, you know what expect with your mortgage or health insurance bills and can schedule payments accordingly. Consider using your bank’s auto pay option to manage these bills in one place.
For accounts where your balance changes each month, such as a credit card, it may be better to sign up for automatic payments directly through them. You’ll want to cover at least the minimum amount due each month, but you may not always be in a position to pay more. One solution is to authorize automatic payment for the minimum amount due each billing cycle, and then make additional payments manually as your budget allows.
Infrequent bills, like an annual subscription or semiannual insurance premium, may not be the best candidates for automatic bill payment. You are more likely to forget about them and risk overdrawing your bank account. Check to see if your bank has an option to send email or text reminders when your balance is low or a bill is due. Also monitor billing statements periodically and look for changes in amounts billed or unexpected one-time charges.
Automatic bill payment can save time and money, but you still need to be organized about your finances. If you, your client or a loved one needs help handling their financial, personal and/or legal documents, Liberty Paperwork Solutions can help. Call or contact us today for a free, confidential conversation.