Automatic Bill Payment: Pros And Cons
Paying bills by mail or in-person can be time-consuming and costly in terms of the expense paid for postage or gas. An increasingly popular alternative is automatic online bill payment, a service that is now offered by the vast majority of banks and credit unions nationwide. Automatic online bill payment allows you to send electronic payments for your mortgage, car loan, utility bills, credit card accounts or other monthly expenses without ever having to leave home. If you’re not one of the estimated 30 million Americans who currently use online bill pay services, it may be time to consider the pros and cons of making the switch to automatic payments.
Advantages Of Automatic Bill Payment
- It Prevents Late Payments – One of the primary advantages of using an automatic bill payment system is that it helps to ensure your bills are paid on time. You can schedule a one-time payment for individual bills or create a recurring payment for bills that are due on the same date each month. Automatic bill payment allows you to “set it and forget it”, reducing the risk that you’ll incur any late fees or penalties. Paying your bills online can also help to improve your credit since approximately 35 percent of your credit score is based on your payment history. (To learn more about what is on your credit report, see How To Read A Credit Report.)
- It Saves Time And Money – A second benefit of using online bill payment services is the convenience it offers in terms of the time and money you can save. Automatic bill payment eliminates the need for paper checks, which can be expensive to replace if you use them regularly. Paying your bills online also cuts down on the amount of postage you’ll need to purchase. While some companies will accept payments by phone, they typically charge a fee for this service. Many banks and credit unions offer online bill payment at no charge to account holders. Automatic bill payments can be scheduled virtually anytime and from anywhere allowing you to save time by paying all of your bills at once.
- You Can Build Rewards – In some cases, you may choose to pay your bills automatically by charging them to a credit card and paying the balance in full at the end of the month. If you use a rewards credit to cover your monthly bills, you can earn rewards or points for travel, entertainment, shopping or cash back, depending on the type of card you use. If you choose to use online bill payment in order to earn rewards or bonuses, it’s important that you only charge what you can afford to pay in full each month in order to avoid incurring unnecessary debt. (For more information about the benefits of using a credit card to pay your bills, see 7 Important Benefits Of Using A Credit Card.)
Automatic Bill Payment Disadvantages
- Hidden Costs – One disadvantage of using online bill payment services is that some banks still charge for this service in the form of a monthly fee or a per-transaction fee. In some cases, you may be allowed a certain number of transactions at no cost but be required to pay a fee for any bill payments over the limit. Before signing up for automatic bill payment services through your bank, you should determine what, if any, fees you may incur.
- Overdraft Or Late Fees – In addition to service fees, you may be responsible for overdraft or late fees if you don’t have sufficient funds in your account to cover your bill payments. Unlike a paper check which can take days or even weeks to process, an electronic bill payment is sent on the day it’s scheduled and will typically clear your account within 24 to 48 hours. If you don’t have enough money in your account to cover the bill, the bank may charge you an overdraft fee of up to $35 for each transaction over the limit. In addition to having to pay an overdraft fee, you may end up getting hit with a late fee or a returned check fee from the company you were attempting to send the payment to.
- Security Risks – While using online bill payment can reduce the risk of identity theft by eliminating the need for paper statements, checks or other documents that may include your personal information, you still need to be aware of the potential security risk. While most banks install firewalls, use data encryption and require customers to select their own personal identification numbers (PINs) and passwords, there is still the possibility that any data you transmit electronically could be accessed by someone other than the intended payment recipient. Before enrolling in online bill payment services, it’s important to ensure that your computer is equipped with appropriate anti-virus or security software to prevent your personal information from being compromised. (To learn more about how to prevent identity theft, see Helpful Facts And Tips On How To Prevent Identity Theft.)
Automatic payment services take the hassle out of paying the monthly bills and offer consumers a more convenient way to manage their expenses. However, using online bill payment requires careful planning and regular accounting to ensure that you don’t end up with missed payments or unnecessary fees.