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  1. #1

    Automatic Payments: Pros and Cons

    How Do You Pay Your Bills?



    Are your credit card bills, mortgage and student loans set to automatic payment? In the technologically savvy world that we live in, automatic payments are increasingly becoming the norm. No stamps, no envelopes and no checks to write. The days of pulling out the bill basket and scrutinizing each paper statement are long gone. Most companies have switched from paper bills to e-bills and many don't even offer a paper bill option anymore.

    Today there are more electronic payment options than ever before. You can pay your bills via e-check, scheduled automatic deduction from your checking account and even using your credit card on a company's website. You can pay all of your bills in a matter of minutes from your living room. All you need a a computer with an active Internet connection.

    Paying your bills is getting easier and easier. But does the ease of payment really help you in the long run? What are some of the pros and cons of automatic payments and how can they help or hurt your finances?

    Pros of Automatic Payments

    1. You don't forget to pay your bill. If you're a person who tends to forget to pay bills, automatic payment will save you from making late payments.
    2. You don't have to think about paying your bills. Have you ever had a family crisis that took you away from tending to your finances for a period of time? When your bills are paid automatically, your payment is always sent on time, even if your mind is somewhere else.
    3. Lower interest rates. Some companies (student loan companies in particular) give you a lower interest rate if you sign up for automatic payments.
    4. Interest rate deductions with on time payments. Some companies drop your interest rate slightly after a certain number of on time automatic payments.
    5. Traveling? On an international business trip or vacation and don't have access to the bills in your mailbox? No problem, your payments are instantly sent so you don't have to worry about late payments.

    Cons of Automatic Payments
    1. No money? Big Problem! If the money isn't in your account when it's time for the automatic payment, the auto payment will be declined and you may face late charges, overdraft fees and penalties. Those penalties and fees add up quickly and can really hurt you and your credit score.
    2. You might not notice if there's a change in the bill. Let's say you have your credit card bill set up for an automatic payment the 15th of each month. You selected that you want the credit card company to auto-deduct $250 from your checking account (this is your minimum payment) each month. This month you overspend your budget and the minimum payment is $260. If you don't pay at least the minimum payment you may be be stuck with hefty fees.
    3. You might keep paying payments once the bill is paid in full. This happens more often than you would think. You set up an automatic payment (Primary Mortgage Insurance comes to mine) with your loan company. The bill is automatically paid in full each month from your checking account and you don't even have to think about it. Two years later you realize that you paid the required 20% down payment in full six months ago, but your kept auto paying the monthly Primary Mortgage Insurance. Trying to get the company to give you your money back will likely be a struggle to say the least.

  2. Automatic Payments: Pros and Cons
  3. #2
    Registered User Enthusiast
    Posts
    63
    I think that automatic payments are essential for maintaining a perfect payment history, especially if you have multiple credit cards with due dates all over the place.

    Most credit cards offer automatic minimum monthly payments which can be a godsend IMO because as long as the money is in your bank account you are never going to be late on a payment or miss a payment.

    You then have the option of paying more than the minimum through a manual payment but you know that the minimum has been covered.

  4. #3
    Registered User Enthusiast
    Posts
    64
    I love automatic payments. I'm really forgetful so if I didn't have automatic payments, I would have late fees from every company I deal with.

    The only thing I don't have set up for automatic payments are my credit cards.

  5. #4
    Registered User Enthusiast
    Posts
    69
    I used to have automatic payments set up for my cable but I didn't have enough money in my account and it bounced so I got a late fee from the cable company and also fees from the bank, it was awful. I hardly any money in the account and the fees actually made me go into the negatives. It was my own fault for not keeping a closer eye on my bank balance but it was still really annoying.

  6. #5
    Registered User Junior Member
    Posts
    43
    Quote Originally Posted by AnnaR View Post
    I used to have automatic payments set up for my cable but I didn't have enough money in my account and it bounced so I got a late fee from the cable company and also fees from the bank, it was awful. I hardly any money in the account and the fees actually made me go into the negatives. It was my own fault for not keeping a closer eye on my bank balance but it was still really annoying.
    Automatic payments make me nervous for exactly this reason. I know its convenient to have everything automated but I like to do it myself, just in case.

  7. #6
    Quote Originally Posted by Card Dude View Post
    You then have the option of paying more than the minimum through a manual payment but you know that the minimum has been covered.
    Good point about the minimum payments. You'll never be late on your payments as long as you have the money in your account to cover the amount that's being taken out. Which for forgetful people is pretty great.

  8. #7
    Quote Originally Posted by OneMoreDollar View Post
    Automatic payments make me nervous for exactly this reason. I know its convenient to have everything automated but I like to do it myself, just in case.
    Yup, making sure you have the money to cover the auto payment is really important. You can get stuck with all kinds of fees and penalties if your payment "bounces". A definite nightmare!

  9. #8
    Quote Originally Posted by AnnaR View Post
    I used to have automatic payments set up for my cable but I didn't have enough money in my account and it bounced so I got a late fee from the cable company and also fees from the bank, it was awful. I hardly any money in the account and the fees actually made me go into the negatives. It was my own fault for not keeping a closer eye on my bank balance but it was still really annoying.
    Oh man, that's a bad situation. I'm sure you'll never do that again. Sometimes those painful "lessons" really are a wake-up call in our financial lives.

  10. #9
    Quote Originally Posted by byedebt View Post
    I love automatic payments. I'm really forgetful so if I didn't have automatic payments, I would have late fees from every company I deal with.

    The only thing I don't have set up for automatic payments are my credit cards.
    I have autopayment for everything except for my credit cards too. I like to watch the variable expenses more carefully.

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