Yay or Nay to Autopay: When Automatic Bill Payment Goes Horribly Wrong
When it comes to paying recurring bills, signing up for automatic payments may seem like the easy — and responsible — way to go. It's a surefire way to have your payments delivered on time, and something that's not only good for building your credit score, but also for your peace of mind.
According to Gregory Karp, author of Living Rich by Spending Smart and The 1-2-3 Money Plan, the average consumer pays about 12 bills per month and Americans spend 22 hours per year paying bills. "Besides saving money on stamps and paper checks, [autopay] saves hassle," Karp told DealNews. "Life's too busy and time too short to devote loads of time to bill-paying."
But can the convenience of autopay backfire, making it conveniently easy to not keep track of your spending? Before signing up for automatic bill payments, consider these possible drawbacks.
Maintaining Your Bank Balance
First and foremost, you must maintain enough money in your bank account for autopay to be affective. This seems obvious, but the convenience of automatic payments requires that you keep a close eye on your bank account balance — and be aware of when the charges are slated to hit your account. For this reason, some financial experts recommend using automatic payments only for regularly recurring bills (i.e. a monthly utility bill versus a water bill that arrives every three months) and for bills that are always roughly the same amount (cable television, for example). Keep track of bills that can vary seasonally, such as gas and electric.
Additional Charges May Go Unnoticed
When you have an automatic bill pay for services like cable or wireless, it's easy to not notice an increase in fees, new surcharges, or even incorrect charges. "Just because you're autopaying doesn't mean you're not looking at bills and checking for errors and rate increases," Karp says. "I think people who switch to online billing can become complacent and do not check [charges] as often as they should."
Even subscriptions prices can change. Let's say you ignore reminder emails from services like Amazon's Subscribe & Save, which offer discounts on recurring purchases of things like toiletries and groceries. Losing track of your subscription at best means extra toothpaste and toilet paper. But, at worst, you could end up paying more than your original quoted purchase as time goes on if you aren't aware of these notifications.
Monthly Subscriptions Add Up
Do you already have great deal on a streaming music service and love your Dollar Shave Club membership plan, and now you're thinking about adding a premium cable channel? Before you do, check the total costs of the services you already pay for before subscribing to additional monthly memberships and subscriptions: combined they easily take a large bite out of your bank balance.
"I call it the curse of recurring payments — the gym membership, wine of the month club, streaming video service, premium cable channels," Karp says. When you're subscribing to services that automatically bill, Karp recommends looking over these charges quarterly and asking yourself if they're really necessary. "Be ruthless about cutting," he says. "You could always add it back if you find you miss it."
When Free Trials End
The idea behind a trial subscription to a magazine or a premium job networking site is that you'll enjoy it so much, you will continue as a paid subscriber. In some cases, it's easy to unsubscribe before you have to pay — just remember to mark the date on your calendar. Once some companies have your credit card or bank info, however, it can be more difficult to discontinue subscriptions. According to a PCWorld article, after a writer subscribed to 40 free trials, he found that more than one-fourth of them were difficult to quit, and three companies even charged his card despite cancellation.
Refunds Are Harder to Process
Once a company has your money, it's sometimes more difficult to get a refund. For example, if you sign up for a gym membership and don't receive the rate you were promised, you might be looking at a few months of disputes, or even offers from the company that aren't quite as good as the ones you initially signed up for.
If you're wary of a vendor, it's better to use a credit card versus a number tied to your bank account. "The ability to dispute a charge is definitely an advantage of using a credit card," says Karp.
Wrongful Charges Can Snowball
Incorrect charges — whether they be more than expected or completely unauthorized — are definitely inconveniences. What's worse, if your bank account is overcharged by a vendor, it can easily lead to overdraft fees that you'll have to pay. For example, earlier this year, a Dallas, Texas-based utility company accidentally withdrew 10 times the amount owed from the accounts of nearly 40,000 customers, who then had to wait 24 to 72 hours for a refund.
Keeping Your Accounts Up to Date
If your bank account changes or your credit card expires, change your billing information before you get failure notices. Be sure to provide current emails and phone number, and provide secondary emails and phone numbers if the option is available.
Convenience Fees Add Up
Some companies charge a convenience fee for automatic payments. However, this method is pretty unpopular with consumers, as Verizon Wireless discovered a few years ago; when the company proposed charging a $2 fee for autopay, its customers reacted with lots of negative feedback, and then promptly dropped the idea.
Provided you avoid these pitfalls, automatic payment is a viable option for many consumers. "The largest benefit is that you won't forget to pay the bill," Karp says. "Failing to pay could mean incurring late fees and wrecking your credit scores, not to mention that your lights might go dark if you don't pay the electric bill." Overall, he says, "I think the benefits outweigh the disadvantages." We agree, but do you, DealNews readers? Which services do you pay automatically and which do you prefer to pay manually? Do you do so online or by check? Tell us in the comments below.
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Note: Josie Rubio died on December 3, 2019.