There was a time when we all had to scratch out a check every month and stick it in the mail to pay monthly bills. Fortunately, those days are long gone, and it’s now simple to pay utilities, credit cards, loans and other bills online. Even with that convenience, however, it’s still possible to forget a payment due date or even miss a payment.
That’s where signing up for automated bill payment – where the creditor, bank, utility or another company automatically withdraws monthly recurring transfers of money from a credit card or bank account on file to pay a bill – comes in handy. Automated bill paying can help you keep your finances in order, but this payment method also comes with a few risks you need to stay on top of to avoid problems.
1. Pro: Automatic billing makes life easier
Tired of putting a long list of payment due dates on the calendar or on sticky notes around the house? And how about the dreaded bill-paying session where you sit for an hour and pay bill after bill online?
When your bill-paying is automated, it will free up your time, allowing you to spend that hour or two doing something you enjoy instead. Plus, you won’t have the stressor of trying to remember to pay all those bills on time.
Find out: 6 signs you’re not living within your means
2. Pro: You can avoid late payment fees
Few personal finance mistakes are more frustrating than incurring a $40 late fee on a credit card because you paid two days late or thinking you paid your car payment when you haven’t, so you owe twice as much the next month. Setting up automated payments can remove this unpleasant scenario once and for all. The payments are always on time, eliminating costly and annoying late fees.
Find out: How to avoid the most common credit card fees
3. Con: You still risk incurring fees
Automatic, recurring payments can make sure you pay the correct amount on time and don’t end up paying late fees. However, you still have to do your own part to avoid certain fees. For example, if you set up the recurring payment date on the exact date it’s due each month, you could still have to pay a late fee since most payments take at least a day or two to process.
You also risk being charged overdraft fees if the payment amount changes and you don’t update the recurring payment information to reflect the new amount. To avoid overdraft fees, if you’re having payments transferred, don’t forget to deduct those amounts from your bank account.
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4. Pro: Your credit score can improve
Did you know that payment history accounts for around 35% of your FICO credit score? So late payments can lower your score or keep it stuck in the poor, fair or good category. On the other hand, regular, timely payments over time will likely improve your credit score, putting you in the enviable position of qualifying for better financing terms and superior credit cards.
How long will it take your credit to improve? That depends on several factors, such as payment history and how much debt you currently have. However, time itself takes care of old, negative payment history. That’s because late payment account information automatically drops off your credit report after seven years.
So automated recurring billing that eliminates past-due payments works in your favor, “automatically” improving your credit score over time.
Find out: Time heals these 4 credit score wounds
5. Con: Nobody’s perfect
Just because you’re set up automated billing doesn’t mean there is no chance that errors can occur. Whether mistakes are human error or technical glitches, you’ll still have to address and correct them to keep from paying late or overpaying. So let automation do its job, but make sure you also check each month to make sure all payments have been made on time and for the correct amount.
Related:
- How to set up automatic payments as a small business in Canada
- How to get paid faster with recurring bill payments
This article
originally appeared on Debt.com and was
syndicated by MediaFeed.org.
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9 bills you should have on autopay
Life gives us a lot to keep track of, from work meetings to playdates to doctor’s appointments. If you’re still manually managing all your bills, consider enrolling in autopay to free up brain space for more important things. As long as you’re budgeting for monthly expenses, not automating your recurring bills could be a money mistake.
Setting up autopay could even help you ease money anxiety. If you forget to pay a bill, you’ll likely incur an unnecessary late fee or interest charges, and possibly a hit to your credit score.
For bills built into your budget already, enrolling in autopay will give you better control over your finances with less overall effort. Here’s why you should consider putting these nine bills on autopay.
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The best mortgage lenders generally have a grace period, typically around 15 days after your payment’s due date. So if you forget a bill one month and don’t pay within that time frame, you could incur a late fee between 3-6% of your monthly payment. And if you’re late by more than 30 days, that late payment will show up on your credit report.
Most landlords will charge a late fee as well, typically as a percentage of your monthly rent, though every state has different laws about how much and when landlords can stick you with a late charge. If your state allows, your landlord could charge you the day after rent is due.
If your rent is the same every month or you have a fixed-rate mortgage, setting up autopay could make sense. Your jaw won’t drop when you suddenly realize the first of the month has passed, and you might avoid late fees.
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If you schedule automatic payment for your federal Direct student loans, you could take advantage of a 0.25% interest rate deduction. Many private lenders offer a lower rate for borrowers enrolled in autopay as well.
Even if you can’t save money by setting up autopay, it can still prevent you from forgetting a payment. Doing so will help you avoid late fees and a potential hit to your credit score.
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Credit card payments are likely to change monthly, so you may be nervous about setting up autopay for the full balance in case you need to carry a balance over to the next month. After all, if you don’t have enough money in your checking account to cover your credit card bills, you might get charged an overdraft fee of up to $30. But missing payments could result in credit card late fees and penalty APRs, which could be more expensive than an overdraft fee.
One way to handle this is to set up autopay for the minimum payment every month. That way, you could prevent late fees and avoid overdraft fees as well. And as long as you manually schedule a payment for the remaining balance before the end of the billing period, you shouldn’t be charged interest.
Another option is to ensure you have enough in your checking account to cover your upcoming bills, which can be difficult without the right tools. An app like Simplifi can help by offering insight into what will be left over after you’ve paid your upcoming bills, which could help you make important spending decisions.
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Like student loans, some of the best banks, credit unions and auto lenders provide a discounted rate for borrowers enrolled in autopay. And even if your lender doesn’t offer a discount, you could potentially avoid late fees by enrolling in autopay. The timing and amount of each late fee will depend on your specific contract and laws in your state.
Defaulting on your auto loan could also lead to repossession. Although most lenders will notify you of missed payments before taking action, some contracts allow the lender to seize the vehicle as soon as the borrower is in default.
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Because your insurance premium won’t typically change from month to month, it’s a good idea to set up automatic payments. Just remember to reevaluate your budget if your premium increases after policy renewal. Some companies also provide an insurance discount just for enrolling in autopay, so you can even save some money on your bill if you sign up.
Insurance companies might not charge you a late fee if you miss a payment. However, your policy could potentially be terminated following the grace period, which varies by insurer.
Going without insurance protection could destroy your finances. For example, if you let a health insurance policy lapse and you need medical treatment, you might end up paying thousands out of pocket. And if your car insurance policy lapses, you could have your driver’s license suspended if you’re caught driving without coverage.
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It’s hard enough to remember to sign permission slips and pick up your kids on time, so give yourself a break and set up automatic payments for your day care expenses, if possible. Every day care center has a different policy, but some will charge you a late fee if you’re even a day late with a payment. Putting this bill on autopay could give you one less thing to worry about.
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Putting your utility bills on autopay may or may not make sense for your family. However, if you’re on a budget plan where you pay a consistent amount each month, it’s likely worth automating your payments. Doing so could help you avoid late fees, interest charges and even shutoffs.
If your utility bill fluctuates, consider whether the degree of change could result in insufficient funds. If it only varies $20 or so from average, you might feel comfortable setting up an automatic payment for the amount due. The right budgeting apps could help you feel more comfortable with putting fluctuating bills on autopay as well.
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Many cell phone plans have fixed monthly payments, and it might make sense to enroll in autopay if that’s the case for your family. Setting up autopay could help you avoid late fees or losing service. If your cell phone bill fluctuates based on usage, decide whether autopay works with your budget or if you want to handle this bill manually.
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If you’re making payments on a personal loan or any other loan with a fixed monthly payment, consider making your payments automatic, particularly if you’re paying a high interest rate. Installment lenders might not charge a penalty APR, but they could assess a late fee. Although some loans for creditworthy borrowers don’t come with late fees, interest charges could still pile up if you miss payments.
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If you have bills that change monthly or services you don’t plan to keep for an extended period, it could make more sense to pay these manually. That way, you won’t end up paying the incorrect amount or getting charged for something you aren’t using. For example, you may not want to put your gym membership, summer pool membership or subscriptions you might cancel on autopay.
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Because expected expenses are typically easy to budget for, you could save yourself stress and potentially negative financial consequences by setting up automatic payments. But remember that a single unexpected expense could throw your budget off if you don’t keep enough money in your savings account.
If you can put your bill payments on autopilot, you might have less to worry about in the day to day. You can use that extra time to plan your next vacation, spend more time with your family, or treat yourself to something new. Financial management gives you the freedom to do more.
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This article originally appeared on financebuzz.com and was syndicated by MediaFeed.org.
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