Automatic monthly payments can simplify your life, but the payment method has its drawbacks.

3 minute read

There was a time when we all had to scratch out a check every month and stick it in the mail to pay monthly bills. Fortunately, those days are long gone, since it’s simple to pay utilities, credit cards, loans and other bills online. Even with that convenience, however, it’s still possible to forget a payment due date, or even miss a payment.

That’s where signing up for automated bill payment – where the creditor, bank, utility or another company automatically withdraws monthly recurring transfers of money from a credit card or bank account on file to pay a bill – comes in handy. Automated bill paying can help you keep your finances in order, but this payment method also comes with a few risks you need to stay on top of to avoid problems.

Click here to sign up for our free financial education email course.

1. Pro: Automatic billing makes life easier

Tired of putting a long list of payment due dates on the calendar or on sticky notes around the house? And how about the dreaded bill-paying session where you sit for an hour and pay bill after bill online?

When your bill paying is automated, it will free up your time, allowing you to spend that hour or two doing something you enjoy instead. Plus, you won’t have the stressor of trying to remember to pay all those bills on time.

Find out: 6 Signs You’re Not Living Within Your Means

2. Pro: You can avoid late payment fees

Few personal finance mistakes are more frustrating than incurring a $40 late fee on a credit card because you paid two days late or thinking you paid your car payment when you haven’t, so you owe twice as much the next month.

Setting up automated payments can remove this unpleasant scenario once and for all. The payments are always on time, eliminating costly and annoying late fees.

Find out: How to Avoid the Most Common Credit Card Fees

3. Con: You still risk incurring fees

Automatic, recurring payments can make sure you pay the correct amount on time and don’t end up paying late fees. However, you still have to do your own part to avoid certain fees. For example, if you set up the recurring payment date on the exact date it’s due each month, you could still have to pay a late fee, since most payments take at least a day or two to process.

You also risk being charged overdraft fees if the payment amount changes and you don’t update the recurring payment information to reflect the new amount. To avoid overdraft fees, if you’re having payments transferred, don’t forget to deduct those amounts from your bank account.

Find out: How to Deal With Financial Stress in a Healthy Way

4. Pro: Your credit score can improve

Did you know that payment history accounts for around 35% of your FICO credit score? So, late payments can lower your score or keep it stuck in the poor, fair or good category. On the other hand, regular, timely payments over time will likely improve your credit score, putting you in the enviable position of qualifying for better financing terms and superior credit cards.

How long will it take your credit to improve? That depends on several factors, such as payment history and how much debt you currently have. However, time itself takes care of old, negative payment history. That’s because late payment account information automatically drops off your credit report after seven years.

So, automated recurring billing that eliminates past-due payments works in your favor, “automatically” improving your credit score over time.

Find out: Time Heals These 4 Credit Score Wounds

5. Con: Nobody’s perfect

Just because you’re set up automated billing doesn’t mean there is no chance that errors can occur. Whether mistakes are human error or technical glitches, you’ll still have to address and correct them to keep from paying late or overpaying.

So, let automation do its job, but make sure you also check each month to make sure all payments have been made on time and for the correct amount.

Did we provide the information you needed? If not let us know and we’ll improve this page.
Let us know if you liked the post. That’s the only way we can improve.
Yes
No

About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC