The basics of automatic payments
With automated payments, the amount owed will be withdrawn from the account of your choosing on a scheduled date every month. This can be a checking or savings account, a credit or debit card, or even a money market account. According to Rebecca Lake, a contributor to Forbes, some expenses are better suited to automatic payments than others. Utilities, mortgages, loan payments, and subscription services are all ideal candidates. However, if you’ve got a monthly payment due to a local landlord or a small business, your biller may not be able to collect an automated payment. In those cases, you’ll still have to write out a check, pay by phone, or submit a traditional online payment.
Benefits
When it comes to convenience, it’s hard to beat automatic bill pay. In addition to saving time, it spares you the tedium of logging into a bunch of different accounts. Your financial institution likely offers the ability to set up payments right from your online account. That way, you can view all of your outgoing payments for the month — and plan your spending accordingly. And since you can easily monitor who you’re sending money to, you’ll never have to worry about your checks getting lost in the mail. On top of that, NerdWallet finance writer Melissa Lambarena explains automation can also boost your credit rating, since timely payments are a major component of your FICO score. So, if you’re looking to score a good interest rate on a loan, automatic payments can be a painless way to beef up your credit report.
Drawbacks
Before you commit to this convenient way to pay, consider these pitfalls. If you’re lax with monitoring your account balances, you could find yourself with a pile of overdraft fees and late payment penalties. To prevent this, Lambarena encourages you to sign up for notifications to help you stay on top of your account balances, or let you know when money is about to be withdrawn from your account. And if you’ve signed up to have your credit card automatically charged, Lake advises you to keep an eye on your card’s expiration date, since an out-of-date card could lead to a missed payment, late fees, and a disruption to your service. It’s also possible that your biller could make a mistake, warns Lambarena. For instance, a company could withdraw funds from your account twice on accident, or make a typo and deduct far more money from your account than you expected. Although both scenarios are quite rare, you could still get stuck paying overdraft fees. It’s also easy to lose track of your money when you rely on automatic payments, so Lambarena recommends frequently checking your list of automatic withdrawals and trimming those easily forgotten subscription services.
If you’re looking to get started with automatic bill pay, take the first steps by contacting your financial institutions to learn more about your options.