Are you tired of having to remember to manually pay your bills every month? With an automatic bill payment plan, the monthly bill is charged to your card on a pre-set date every month without you having to do a thing.
Not only can you make automatic payments with credit card bills, but you can also do it for utility, phone, and household bills! This process definitely makes your life easier but there are also some drawbacks.
In this post, we’ll go over the pros and cons of having automatic bill payment plans.
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What Is An Automatic Bill Payment?
An automatic bill payment is exactly as it sounds like. It is a service that allows any bills that you have connected to your credit card or bank account to be paid automatically at a predetermined rate.
Normally, these payments are usually set up with the company that receives the payments but it’s also possible to schedule automatic payments through a checking account’s online bill pay service. Generally, automatic bill payments go through an electronic payment system, such as the Automated Clearing House (ACH).
Basics of Automatic Bill Payment
Automatic bill payments can be scheduled for almost all types of payments such as installment loans, auto loans, mortgage loans, credit card bills, electric bills, cable bills, and more. You can set up these payments to be automated through your checking account.
To start this process, you must make arrangements with the bank that’s in charge of your checking account to make the exact payment every month. The set of instructions is typically created online by the owner of the account and the vendor can charge the checking account for whatever amount is owed in that particular month.
Advantages of Automatic Bill Payment Plans
- Convenience. By setting your bills up to be paid automatically, you won’t need to worry about keeping track of what needs to be paid or paying them on time. Once an automatic payment plan is established, your bank or credit card will handle the rest.
- Rewards. Having an automatic bill payment on your cash back or travels rewards credit card will get you one step closer to earning even more free travel, rewards, or even cash back.
- Environmental Issues. By eliminating paper bills and check writing, you reduce your impact on the environment. Not only do you save paper and trees, but you eliminate the carbon footprint left by snail mail.
- Saves Money. You’ll no longer have to pay for checks, stamps, envelopes, or gas for trips to the post office.
- Helps Your Credit Score. When your bills are set up to be automatically paid, you should rarely miss a payment. This can majorly hurt your credit score. When credit scoring agencies see that your bills are always paid on time, it helps your credit score by keeping it high or boosting it.
- Less Chance of Identity Theft. If your bills are not mailed to your home and you are not mailing in paper payments with credit card or checking account numbers, you reduce your risk of identity theft. Sure there are risks when paying online as well, but the security is typically greater than a mailbox.
Disadvantages of Automatic Bill Payment Plans
- Potential Cost. Some companies will charge you a fee because automatic payments actually save them money. If you encounter this situation, make them process a paper check instead.
- Losing Track. With automatic payment plans, it can be easy to forget what gets paid each month and when. This can lead to unnoticed bank errors or mistakes.
- Overdraft Fees. You still need to make sure you have enough money in your checking account to cover automatic payments. Otherwise, you will incur some fees via bank overdraft charges.
- Stopping Payments. Stopping automatic payment plans can be much more difficult than setting it up. Sometimes you have to notify your bank and your merchant, and you may even need to do it in writing.
- Running Up a Credit Card Balance. If you aren’t careful and don’t pay off your bills, you could be left with credit card debt.
If you aren’t so good at tracking and paying your bills, having an automatic bill payment plan can be of assistance. Some people may think that the pros of this definitely outweigh the risks. Let us know what you think of it in the comments!