Money at 30: The Autopay Dilemma
Ever since I became an adult (on paper) and started paying my own bills, I’ve had a love-hate relationship with the concept of autopay. On the one hand, services that allow you to easily schedule on-going payments can be incredibly convenient. Of course, on the other hand, these automatic payments combined with poor money management on my part landed me in trouble more than a couple of times.
How Does Autopay Work?
Autopay is the process of setting up an account to be paid automatically on a set date. Depending on the account, payments can be setup to be debited from a bank or credit union account – checking or savings, a credit card, or a debit card. Typically autopay is setup to pay for recurring services, e.g. your cell phone bill, or for paying down a debt, e.g. a student loan or a credit card.
Is Autopay a Good Idea
Now that I’ve gotten my finances largely under control, you might expect that my feeling towards autopay would have shifted. While that’s true to some degree, I am still surprisingly weary of these options. Why? Let me explain — here are a few pros and cons that come to mind when I think of the “autopay dilemma.”
Pro: Always on-time payments
Clearly this is one big reason why autopay is a good thing. Even as I try to be organized with my bills and pay them as soon as possible, I’ll admit there have been some close calls as some of my calendar items have snuck past me. Most recently this happened with my newly-added health insurance policy, which requires me to pay my premium at the end of each month. Whether because it was a relatively new bill for me or because I apparently didn’t sign up for the right reminders, there were back to back months where I found myself scrambling a day or two before the due date.
Following that experience, I elected to join my insurer’s autopay program. However, part of the reason I felt it was worth it in this particular case was that the recurring payment amount remains the same. As for bills with changing totals, it may be a different story.
Con: Easy to miss overpayments
As I alluded to, one of the downsides of autopay is that the convenience these services offer can enable you to start overlooking your expenses. This could mean that you allow an unneeded subscription to continue without noticing or perhaps miss a price hike and/or mischarge on one of your other services. In each of these cases, you could end up overspending simply because you stopped paying attention to your finances.
Because of these possibilities, you’ll still want to inspect your various statements and verify your automated payments on a regular basis. I’ve also found it helpful to keep a master list of all my bills that are currently auto-paid. This way I can still spot errors and make changes as necessary.
Pro: Potential discounts
Just as autopay options give consumers some peace of mind that their obligations will be taken care of, they also give companies assurance that they’re going to receive their money. Because of this, it’s not uncommon for certain businesses to offer perks to those customers that utilize their autopay service. These perks could amount to discounts on your service or the waiving of an otherwise required deposit when joining. To be sure, these discounts may sweeten the deal and make signing up a no-brainer — although you’ll still want to adhere to the advice above.
Con: You could end up paying more
In a strange twist, there may be some situations where autopay actually costs you more. That’s because some companies may charge a transaction fee for payments made by credit card or electronic check. While these fees can vary, they can also add up quickly. Thus, instead of selecting an autopay option that will charge you extra, consider alternative methods — including mailing a physical check just like the old days if need be — that might result in some savings.
Pro: Timely payments means better credit
Earlier I mentioned that perhaps the biggest perk of autopay services was that you’d ensure your payments are always on time. However it’s worth adding that this can also serve to raise your credit score. Since payment history is the single largest factor affecting your credit scores, it’s hard to discount this positive impact.
Con: May require you to update
Unfortunately, while autopay options can send you on a timely payments streak that can boost your credit, forgetting to update your information can also cause you to derail your finances. In most cases, when you receive a new credit or debit card, switch banks, or make other changes to your accounts, you’ll likely need to update your existing payment profiles in order for them to continue without a hitch (once again, this is where maintaining a master list can really come in handy). Failure to do so could mean that your payments are declined, which could them make them late or even delinquent.
The good news is that your service provider will usually let you know if there’s a problem with your auto payment and may even send you a heads up when the card you have on file is getting ready to expire. Still, it’s important that you pay attention to these alerts and make your updates pronto. Otherwise these once convenient payment options could have you paying late payments fees and hurt your credit score.
Overall I’d have to say that autopay options are a positive financial tool in today’s world. That said they shouldn’t be used as an excuse to get lazy about your money. Just remember that you’ll still want to pay attention to each of your payments for both budgeting and verification purposes.