About 61 percent of Americans pay at least one bill automatically. If you haven’t joined the bandwagon, you might have a few questions about why you would make the switch to automating your bill payments.
Autopay involves your bank automatically transferring money from your bank account to your creditors according to a set schedule. You can automate nearly any fixed expense that’s due on a regular schedule — from rent and your water bill to an online personal loan or credit card.
Automation is an easy way to keep on top of these expenses, but it’s not without its risks. Here are some pros and cons of making the switch.
Pro #1: Life is Easier When You Aren’t Paying Bills by Hand
Convenience is the biggest perk to automating your bill payments. Once you set your transfer rules for each bill in your budget, you won’t have to lift a finger ever again. Your bank will send money to the right people on a strict schedule on your behalf.
Gone are the days of sending a check in the mail and hoping it arrives in time. You won’t even have to log into your online bank account to pay for utilities, insurance, or online short-term personal loans.
Pro #2: You’ll Never Miss a Due Date
Do you have a bad habit of forgetting about your bills until three days after their due date? This frustrating habit can be expensive, as you might incur late fees and added interest every day, you’re overdue.
With automating your bill payments, your bank will transfer money on time, every time. Just make sure you have the correct date and frequency when programing your withdrawal schedule.
Con #1:You Can Accidentally Run out of Money
If you live paycheck to paycheck, every penny counts. If you miscalculate one month or have to pay for an unexpected repair, you might not have enough money in your bank account when it comes time to pay your bills.
Unfortunately, your bank relies on a cold, hard algorithm that doesn’t think about your bank balance when it follows the rules, so your bank will attempt to transfer money even if you have nothing to your name.
If you don’t manually hit pause on the automatic payment, you may face a double whammy of overdraft and Non-Sufficient Fund (NSF) fees from your bank and late fines and added interest from your creditors.
Con #2: It’s Easy to Lose Track of Your Finances
When you offload your bill payments to a computer program, you can easily lose track of your outgoing cashflow. After months of relying on automatic payments, you might not even remember how much your bills cost each month!
While this might not worry you, it can get you into trouble if you rely on an automatic payment to cover your credit card and line of credit minimum payments.
A minimum payment keeps your account in good standing by covering a fraction of your balance, leaving most of your balance to carry over into the next billing period. There it will accrue interest and finance charges that will add to what you owe.
If you forget to check in on these revolving accounts to pay down your balance in full, you can easily get into more debt and tie up your credit limits.
Automating your bills is convenient and could prevent late fines, but there’s a chance you get too comfortable, lose track of your finances, and overdraw your account. It’s up to you to decide whether the pros outweigh the cons.
Also read: How To Switch To A New Bank?