2758: Are Automatic Payments All They’re Cracked Up to Be? by April Dykman of Get Rich Slowly on Personal Finances

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[00:01:23] Diana Merriam. Now let's get right to it and continue optimizing your life. Are automatic payments all they're cracked up to be? By April Deichmann with GetRichSlowly.org. A few weeks ago, I paid a sky-high electric bill. After some investigation, I saw the problem. The

[00:01:46] electric company charged a $200 deposit fee for starting electric service at our new house. The deposit was supposed to be waived since we had a good payment history with the electric company. Only here it was, on our bill. And since we're on auto pay, the electric company had already

[00:02:03] collected payment. After calling and sorting out the matter, the electric company said they'd give us a credit on our next bill. That wasn't a solution I exactly loved since it meant that

[00:02:13] our bills would be higher than usual that month. Maybe I should have fought them on that, but I didn't. Also, we could cover the overcharge easily enough, so I figured what's the difference? But it did make me think about whether automatic payments are really such a great idea.

[00:02:30] Auto pay doesn't mean autopilot. Auto pay is great because it's convenient, requiring no action on our part to avoid late payment fees. There's nothing to mail and no logins or passwords to remember. I never have to wonder, did I remember to pay the electric bill?

[00:02:48] Robert Long, managing editor for Kiplinger.com says, quote, auto pay is also an especially appealing feature for young adults just starting out in the real world because it makes it very easy to pay the bills, but it can be a trap, end quote.

[00:03:05] For instance, bills that have a variable rate, like your electric bill, can be especially tricky to track if you schedule automatic payments to cover them. Long says, quote, my bill might be

[00:03:17] $50 at one time of the year or as high as $200 other times of the year, depending on how much I'm using the heat or AC, end quote. And if a couple of bills are higher than anticipated,

[00:03:30] you could end up with a low bank balance or even overdraft charges. For instance, you might have a reoccurring annual contract, like a gym membership that you didn't want to renew, but forgot to cancel. Or maybe you're disputing a bill, but in the meantime, the

[00:03:45] company is still charging you and taking the money out of your account. Long goes on to say, quote, giving debtors access to your banking account can open you up to accidental overcharges, whether it's a legitimate bill that's just higher than you expected, or it's an accidental

[00:04:02] billing error where you're being charged a little or a lot more than you should be. AutoPay can be too automatic. It puts control into the hands of the debtor because they can go into your account. Maybe one time out of a hundred, there's an accidental overcharge

[00:04:18] where you're getting scammed, but either way it takes that control out of your hands, end quote. It's easy to set it and forget it. So why is a service that's supposed to make life

[00:04:29] easier so problematic? For one thing, many of us treat bills on AutoPay like a rotisserie oven. We set them and forget them. For instance, I like not worrying about my electric bill, but I admit that I'm not disciplined about checking the bill every month.

[00:04:45] And would I notice if the overcharge hadn't been so large? Probably not. But with no real action required on my part to pay the bill, when life gets hectic, I don't always review the charges

[00:04:56] like I should. Two solutions to AutoPay problems. As with most things in life, you have to do what works for you and AutoPay is no different. As Kiplinger writers, Amanda Lilly and Stacey Rapican discuss in a recent article, there are pros and cons to automatic payments. And sometimes

[00:05:16] what works for you changes as your situation changes. So let's talk about a couple of options. Option number one, if you hate the idea of letting a creditor have access to your money, then skip AutoPay altogether. You can still enjoy many of the conveniences of AutoPay

[00:05:33] with online bill payment. Long notes, quote, personally, I recommend going with online bill payment, but not AutoPay. AutoPay puts control in hands of debtors, but with online bill pay, you're in control. End quote. And option number two, if you're concerned about avoiding late fees,

[00:05:53] use AutoPay, but use it wisely. Here are a few ways to use AutoPay carefully. Number one, pay with a credit card first. If and only if you use credit cards and pay your balance off

[00:06:07] every month, consider AutoPaying with a credit card when possible. It gives you extra time to dispute charges and keeps your cash safe in the meantime. Number two, only AutoPay set charges and minimum payments. If you're worried about too many higher than expected variable bills

[00:06:25] socking it to your balance, don't put those bills on AutoPay. Just set up automatic payments for the non-variable bills like Netflix. It's also pretty low risk to set up AutoPay for minimum payments, such as on credit cards to avoid accidental late fees. Number three, mark

[00:06:45] electronic bills as high priority. Flag them, filter them or tag them. Just have a system to mark your electronic bills as high priority. It's easy to let bills get piled under other emails, which means you'll forget to review them. Number four, opt for payment notifications.

[00:07:05] When you set up AutoPay for a bill, many times you'll have the option to be notified of the bill via text or email before the payment goes through. So opt in. It's just one extra assurance

[00:07:16] that you'll know what you're about to pay. And number five, keep an eye on your bank account. There are a few things you can do to protect your bank account. One, double check the automatic

[00:07:27] payments on your bank statement every month to make sure they're for the right amounts. Two, make sure you've got enough cushion in your account so you won't get hit with overdraft fees, says Long. This is especially important if you have variable bills on AutoPay.

[00:07:42] And three, sign up for balance notifications to make sure you don't overdraw. Long says, quote, set up automatic alerts from your bank or a site like Mint to get an alert when your account dips below a certain level. For some people, automatic bill pay causes more stress.

[00:08:00] For others, it gives peace of mind. Personally, I'm liking the idea of taking my variable rate bills off AutoPay. That way, I won't find out that I've been overcharged after the fact. I'll just pay online each month, which always prompts me to review the bill.

[00:08:19] You just listen to the post titled, Are Automatic Payments All They're Cracked Up To Be? by April Deichman with GetRichSlowly.org. And I'll be right back with my commentary. Looking to part ways with complicated, expensive and uncertain shipping? Then give your business

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[00:10:21] I think April raises some good points about auto pay in this post. But depending on your financial situation, the benefits may still outweigh the risks. Personally, I didn't start using auto pay until I was out of the paycheck to paycheck cycle.

[00:10:35] When I didn't have a good buffer in my checking account, I needed to watch the inflows and outflows very carefully to avoid overdraft fees. But once I had a nice gap between my income and expenses, I let myself enjoy the convenience of auto pay. The occasional overcharge while

[00:10:53] inconvenient can usually be resolved through customer service and implementing a few precautionary measures can further minimize such risks. Variable utility costs were cited as a concern in this article, but many utility companies offer budget billing plans where the

[00:11:10] monthly payment is averaged over the year, making it predictable and easier to manage with auto pay. Also, the fear of overcharges or billing errors can be addressed by setting up alerts and notifications, which many banks and service providers offer. These alerts can notify users

[00:11:27] of pending auto pay transactions or any unusual account activity, enabling timely intervention without sacrificing the convenience of auto pay. But that should do it for today. Have a happy rest of your day and I'll see you for the Thursday show tomorrow where your optimal life awaits.