Even with the peace of mind that comes along with knowing your bills will be paid on time, auto-pay has some downsides that you should consider.
Incorrect Billing Amounts Are Paid Automatically
One of the biggest drawbacks to auto-pay is the risk of having the company withdraw too much from your account. How many times have you had to contact customer service to adjust an error on your bill? In cases, where you haven’t already made payment, customer service can adjust the amount due and you can pay the lower, correct amount.
However, when you’re signed for auto-pay, payments might be made before you get a chance to have the error corrected. While the company will adjust your bill, they likely won’t refund the overpaid amount. Instead, your account will be credited and you’ll have to go without the funds in your checking account.
You Can Lose Track of Your Bills
Sometimes putting your bills on auto-pay makes them “out of sight, out of mind,” but completely forgetting about your bills is a lousy way to manage your finances. There’s more to managing your bills than simply making sure they’re paid on time. For this reason, I have set up most of my bills to auto-pay, with the exception of my cable and Internet bill, which seems to always be changing.
You can easily lose the pulse on your money because you’ve become complacent with your bills being automatically paid. Price increases may go unnoticed, for example. And if your biller increases the minimum payment, but your payment is set for a specific and lower amount, you can get hit with late fees for underpayment even though you technically paid on time.
You Give Up Control Over Your Payments
Say your employer accidentally underpaid you or a technical glitch caused a delay in your direct deposit. If you’re manually paying your bills, you can delay payments until your deposit issues are corrected. However, on auto-pay, the bills will be processed automatically and can cause overdrafts and expensive fees.
Cancellation Can Be a Pain
It only takes a few steps and a few minutes to sign up for auto-pay but depending on the company you’re dealing with, you may have to jump through hoops to cancel your scheduled payments.
For example, you may have to let the company know you want to cancel a few days before the scheduled payment. Some companies require you to cancel in writing – which means you have to type and send a letter and then wait for the company to receive the letter and process your request. Find out ahead of time what it takes to cancel your auto-pay so your cancellation can take effect before the next payment.
Making Auto-Pay Work
Setting your auto-payments to a dedicated credit card – one with a large enough credit limit – can help alleviate some of the issues that happen with auto-pay. At least if a company overcharges you, it comes out of your credit limit, not out of your checking account. If you choose to use your checking account for auto-pay, keeping a buffer in your account can prevent overdrafts.
Whichever method you choose, don’t forget to monitor your billing and checking account statements each month to confirm your transactions and billing amounts are as they should be.