July 15, 2021
It’s been a year since the doxoINSIGHTS Hidden Costs of Bill Pay report was published — some things look very different, and other things remain very much the same. One thing that hasn’t changed: the unimaginable amount of money that goes toward hidden costs on bills each year.
The U.S. bill pay economy rakes in $3 trillion per year, and according to the report, the average American household pays up to $577 each year on hidden costs associated with their recurring bills. These hidden costs and fees include:
- Additional credit costs
- Late fees
- Overdraft fees
- Fraud and identity theft
What Are Hidden Costs?
Hidden costs are expenses that you likely unknowingly incur in the process of paying bills. For instance, if you pay a bill late or don’t have enough money in your checking account to cover the transaction, you will get hit with a fee. The fee is an added, unnecessary expense that you will have to pay on top of the original bill.
Consumers are forced to manage and pay for a dozen bills each month. When the pandemic hit and six out of ten Americans reported reduced pay, they not only scrambled to keep up with their standard bill payment obligations but also the hidden fees that come with them.
Instead of dipping into your savings account or charging more to credit, you might be able to scrounge up a little extra cash by simply reducing the extra costs that you’re funneling into your regular bill payments.
How can Cushion help me?
Cushion Bill Pay gives you more visibility and control over your finances than ever before. Many people get hit with bank fees—such as overdrafts and late fees—due to cash flow problems. With Cushion, you can consolidate and track all of your bills and BNPL payments in one place, plan your budget by reviewing what’s coming down the pike, and avoid overdraft fees by temporarily pausing payments that might overdraft your account and resuming them when you are ready.
How to Avoid Common Hidden Fees
Essential, recurring bills — such as utilities and cable bills, housing, transportation, and insurance — are already a source of stress for many Americans. Additional credit costs, late and overdraft fees, and fraud and identity theft not only contribute to the stress, but cause a great deal of financial strain.
So how exactly do these factors affect what you’re paying to your service providers and financial institutions? And just as importantly, what can you do to avoid the costs?
Additional credit costs
Your payment history and credit utilization make up three quarters of your credit score, so late or missed payments and a large amount of debt that you have to repay on a monthly basis can damage your score and cost you hundreds of dollars a year. This could, in turn, create a lot of unnecessary costs associated with bill pay.
doxo reports that the average American household carries $72,000 in debt from year to year; by staying on top of payments and boosting your credit score, you could save more than $300 per year on interest alone.
How to avoid credit costs
- Make your bill and debt payments on time
- Pay as much on outstanding debt as you can, even if it is only the minimum amount
- Minimize open accounts, debts, and hard inquiries
Late fees
Your service provider or financial institution may issue a late fee if you fail to make a payment on time. doxo estimates that 54% of American households get stuck with one or more late fees every year for a total of $17 billion. This breaks down to about $132 per household per year.
How to avoid late fees
- Keep a physical or electronic calendar of your payment dates
- Create reminders
- Set up automatic payments to avoid a monthly fee (but be aware of overdraft fees)
- Make at least the minimum payment
- Save proof of payment in case you wrongly get a late fee
Overdraft fees
Financial institutions charge you an overdraft fee when you attempt to make a purchase or withdrawal but don’t have enough money in your account to cover the transaction. Americans paid a collective $12.4 billion in overdraft fees in 2020, and while not all of that can be attributed to overdrafts due to monthly bills, the doxoINSIGHTS report estimates that American households spend on average $117 in bill pay–related overdrafts each year.
How to avoid overdraft fees
- Monitor your account balance
- Keep a physical or electronic calendar of your payment dates
- Sign up for low-balance notifications
- Reassess your overdraft protection status
Payment account fraud and identity theft costs
According to the report, identity fraud losses cost upward of $16.9 billion. Account fraud and identity theft typically relate to the breaches of security on the service provider or financial institution’s end, so credit card issuers and merchants absorb a significant portion of these expenses. However, they still direct some costs to credit card users, which lead to out-of-pocket payments of about $27 a year.
How to avoid fraud and identity theft costs
- Only submit your personal information to reputable service providers and institutions
- Minimize the number of open accounts that you have
- Manage bill payments from one platform
- Change login information regularly, or use two-factor authentication
