The Perils and Pitfalls Of Switching To Automatic Bill Payment
Published 1/11/08 (Modified 3/8/11)
Due to my desire to go completely paperless and to streamline my finances, I eliminated paper billing from my life at the start of last year. Of course there are still a few pesky old fashioned companies that insist on sending me paper bills through snail mail, but the vast majority have complied and converted my monthly statements into E-billing. I've also taken it one step further by setting up and activating automatic online debit payments for all of my bank, credit card, and home utility accounts. Since I switched to online billing and automatic debit payments, it's been much easier for me to manage my finances. My primary Citibank checking account is now linked up with all of the paid services that I use, allowing me to easily pay home utility bills and credit cards at the touch of a mouse click. I view my account balances from one convenient page using an online account consolidator program like Fidelity Full View, which is powered by Yodlee. Most services provide the automatic debit option for free, as they should, since it allows companies to save money on payment handling expenses.
Your Payments May Be On Autopilot, But Don't Lose Track Of Recurring Charges
The convenience of automatic paperless bill pay is not without its hazards and pitfalls as I soon learned. Automatic bill pay is extremely easy to set up but it can be tricky to maintain. I'll tell you why. Yes, you no longer have to deal with tracking credit card due dates and bothering with the hassle of licking stamps and remembering to mail off payment checks, but you have to contend with the danger of being lured into a false sense of security and lax oversight. Despite its automated nature, mistakes do happen. If you don't keep an eye on your account activity periodically, you may still find yourself being penalized with non sufficient fund fees or interest charges due to overdrafts in your linked checking account or overdue bill statements.
Once automatic payments have been activated, keep in mind that they will continue nonstop like clockwork until you stop them. In the event you need to temporarily halt an automatic bill payment from going through, the first thing you need to do is call the company to put an end to the order prior to the execution date. The next step is to ensure that you still have sufficient funds in your linked checking account to satisfy the bill amount in the event the payment still goes through. The unintended payment can ultimately be reversed, but usually there is a slight lag time before prior authorized automation can be halted.
Now when you set up automatic debit payments for the first time, and especially for credit cards in particular, it may take up to 1-2 months for the automatic payments to kick in. Remember to continue making regular payments until you receive confirmation that automation has begun (usually a notation on your online account or a paper confirmation sent to you). I made that mistake the first time I started and ended up missing my payment due date. Luckily Citibank was kind enough to drop the finance charges due to my good past payment history.
Be Selective Of Which Charges and Bill Payments You Decide To Automate
The best bills and charges to automate are those that occur monthly at around the same time and involve a fixed amount. Such fixed amounts present less opportunity for contention, and are thus less error prone. Examples of fixed expense bills include monthly health and auto insurance premiums, monthly gym fees, cable TV, satellite TV, and internet service. Mistakes such as double billing do occasionally occur with fixed charges, although they are usually rare.
The bills that I don't particularly advise automating are those that fluctuate drastically or may contain charges that you ought to verify first before paying, such as credit cards and cell phone charges. My own credit card statement balances fluctuate wildly. Sometimes a statement may be $200 and the next month it'll spike up to $900 depending on usage. I recommend holding off on automatic debit payments for your credit cards until you get the hang of monitoring your account regularly online and get accustomed to regulating your available bank account balance to satisfy incoming charges.
Personally, I automate everything, including payments for variable monthly expenses such as credit card bills and cell phone charges. In my case, I always make sure I keep an abundant amount in my checking account to pay for all monthly recurring charges with extra room for the unexpected. I also make a concerted effort to keep tabs on fluctuating bills by reviewing them immediately when the statements become available online. Usually my credit card accounts in particular will send me an email reminder when the statements are ready for viewing. Thus, although you can conveniently set your account payables to autopilot, you still shouldn't fall asleep completely at the wheel.