The Pros and Cons of Automatic Bill Pay
One of the most common pieces of financial advice is to find opportunities to automate expenses. It's recommended to set up automatic bill pay for recurring debts, like credit card statements and student loans.
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While automatic pay can save you time and money, it can also cause problems if you're not careful. Here are some of the advantages, and the sneaky disadvantages to watch out for, when setting up automatic bill pay.
Pro: On-Time Payments
Automatic bill pay means your bills are scheduled to be paid automatically, and on time, every month.
Kristin Uptain, marketing manager at Redde Payments, said there are plenty of benefits that come with on-time payments including no more late fees, forgetting to pay bills or writing physical checks. Timely payments are a stress reliever and that's a great convenience in the life of the everyday consumer.
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Con: Potential Overdraft Fees
"If you don't keep track of when your bills are paid, or if your payment amount exceeds the balance in your checking account when it's due, you could end up with overdraft or insufficient fund fees on your statement," Uptain said.
What consumers don't want is for overdraft fees to become a regular occurrence. Remember that these small fees add up. Don't ignore them. Regularly check your bank account and budget carefully to ensure you have a reliable amount of money to make these payments.
Pro: Builds Credit
In addition to ensuring your bills are paid on time each month, automatic bill payments can help you better build your credit history.
"Timely payments are one of the most important factors in calculating your credit score; they account for 35% of your FICO score," Uptain said.
Uptain recommends viewing it as like getting a gold star for every payment. You'll always need to make timely payments on your bills, so why not benefit from the payment? Automatic bill payments can help you improve your standing with your bank and credit.
Con: Potential Billing Mistakes
Automatic bill payment systems are largely reliable, but it is possible for this kind of technology to experience the occasional glitch. For example, you might be double charged for a product or service that was provided to you in error.
Uptain recommends regularly checking in to make sure you're not accidentally experiencing any incorrect transactions like a higher than normal monthly billing statement. Mistakes like these are usually easy to resolve, as long as you catch them early on.
Con: Potential Identity Theft
What happens if someone steals your credit card or gets access to your checking account information? Identity theft, while a low possibility when it comes to automatic bill pay, is still a possible issue.
To help minimize this risk, Uptain recommends setting up automatic payment plans only with companies that have strong security measures in place.
For issues relating to potential credit card theft, Cynthia Flannigan, CFP and director of financial planning at MainStreet Financial Planning, said to dedicate a separate credit card to important automatic bill payments like utilities and medical premiums. Use the card specifically for these needs and avoid using it in places like online shopping websites where the sites may be less secure.
Pro: Good for the Environment
Automatic pay eliminates additional costs for consumers, like purchasing postage and checks. The elimination of printing costs associated with paper billing is good for businesses, consumers and the environment as a whole.
You can reliably make payments, feel confident that you haven't forgotten anything and do good by the environment, one automatic bill payment at a time.
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This article originally appeared on GOBankingRates.com: The Pros and Cons of Automatic Bill Pay