Bills. Nobody likes them or wants to pay them, but they have a huge impact on your credit worthiness and your financial well-being. So how do you deal with them?
Many consumers turn to automatic bill pay. Sometimes referred to as “online bill pay”, or just “bill pay”, this technology allows you to put your bill payments on autopilot by scheduling the funds to come directly out of your bank account. Many banks allow their customers to set up automatic bill payments through their Online Banking or Mobile Banking interfaces. Another option is to schedule recurring payments through the website of each individual company you pay on a regular basis.
Automatic bill pay can be a great way to manage your payment obligations, but it’s a good idea to consider the potential downsides of automating your payments as well. Weighing both the pros and cons of auto payments will help you decide if they could be a good fit for you.
- Convenience. When you utilize automatic bill pay, you remove the need to mail checks out throughout the month, and you can save yourself money on stamps in the process. And if you’re already paying your bills online, setting up automatic bill payments can prevent you from having to log into various different websites on a regular basis to make payments. If you set up bill pay through one central website, like your bank, you can even access all of your bills in one place.
- Automating your bill payments also helps to ensure that you won’t miss any payments – that is, as long as you have enough money to cover those bills in your account. If you’re notorious for forgetting when your various bills need to be paid, automatic bill pay can be a lifesaver. It can help prevent late payments and resulting late fees, which can add up very quickly.
- And, it just so happens that on-time payments are a major component of your credit score. If you have a clean slate in terms of making all of your payments by their due dates, you’ll have a better chance at a respectable credit history. And a favorable credit report certainly comes in handy when you need to take out a loan or credit card.
- Automatic bill pay can also provide more security than paper-based payments. Payments made through a bank’s billing system are encrypted, so your bank account information remains confidential. There’s no such layer of protection offered when sending checks through the mail. If your envelope gets intercepted by a criminal, they can get your bank account information right off the front of the check.
- Having your bill payments automated through your bank can also help protect you – and your finances – through electronic alerts. Many banks offer email or text reminders letting you know when your balance is running low or when a bill is due. These notifications can help prevent you from overdrawing your account and being slapped with fees.
The Potential Downside
For many consumers, automatic bill pay can help with organizing their financial obligations and making payments on-time, every time. But be sure to evaluate your unique financial situation before deciding whether automating your bill payments is a good choice for you. And remember – whether or not you decide to utilize automatic bill pay, it’s a good idea to check your accounts and scheduled payments on a regular basis. Don’t just “set it and forget it”.
- If you use automatic bill pay to cover bills that fluctuate each month (such as utility bills), you run a higher risk of overdrafts on your bank account. If you find it hard to keep track of your available balance every month, and don’t have a good alert system in place, you may want to avoid automatically scheduling payments for bills with fluctuating balances.
- It’s also possible to fall into a trap of being lazy with your finances if you rely on automatic bill pay. Just because your bills are on autopilot doesn’t mean you shouldn’t keep track of what you’re spending and where you’re spending it. It’s extremely important to check your accounts regularly. Doing so can help you avoid overdraft fees and insufficient funds charges, and can also help you identify any suspicious or fraudulent account activity in a timely manner. You should also keep regular tabs on your payments that are scheduled through automatic bill pay to ensure the correct amounts are coming out of your account at the right times.
- Automatic bill pay can sometimes give consumers a false sense of financial security too, since you’re not actually dealing directly with paying your bills. Without having to come face-to-face with your bills each month and suffer through the “pain factor” of sitting down and writing out a check for each bill, it’s possible to feel more financially secure than you really are. If you’re on a tight budget, you may find it easier to save money when you manually pay your bills each month. Seeing exactly which amounts are coming out of your bank account can be a motivating factor in reigning in your spending habits – helping to cut out wasteful expenses and save more money.