Chances are that you have a handful of expenses to pay on a regular basis, be it monthly or annually. These recurring expenses could include a utilities bill, cell phone bill, student loan or car payment, credit card bill, or monthly or annual subscription. By putting your bills on autopay, you are giving your billers and lenders the green light to automatically charge your account when the due date rolls around.
Many people enable autopay with a “set it and forget it” mindset. They opt into a service’s program and assume a hands-off approach to managing their bills. True, it can be a helpful tool in your financial journey, but autopay should be used strategically. It’s even best to assume that autopay requires as much attention as paying your bills manually (at least to start).
Unfortunately, autopay has the power to do more harm than good, which is why it’s important to carefully consider whether automatic payments make sense for your lifestyle and financial goals.
There are a number of ways that setting up autopay can positively impact your life, most of them if you are someone who already has a handle on their finances and is actively invested in your financial health.
Autopay is convenient
According to BillGO, the average American pays about 12 bills each month — a dozen bills that require you to set aside time to log into the biller’s website, access your payment page, input your information, and await confirmation. Although the process may appear seamless and quick, the time and effort involved with bill pay adds up.
By signing up for autopay, you free yourself up to focus on bigger picture financial goals, like adjusting your budget, investing, or working to save money.
Autopay helps you avoid late fees and credit damage
If you’re certain there will be sufficient funds in your checking account when it’s time to pay your bills, autopay helps you pay your monthly bills on time and avoid penalties. Late fees are one of the most detrimental hidden costs associated with bill pay. According to a recent doxoINSIGHTS report, the average American spends $132 per year on fees for late bill payments.
Additionally, your payment history makes up 35% of your credit score, so missing a payment can do real damage. By setting up autopay, you can avoid delinquent payments, which in turn keeps your credit score in check.
Autopay can be cheaper
Some billers and lenders reward you for setting up automatic payments. For instance, a phone or cable provider may offer bonuses in the form of bill credits and additional lines or channels, while student loan providers offer discounted interest rates when you sign up for autopay.
Autopay eliminates clutter
Both physically and mentally, automatic bill pay can help clear up a lot of chaos in your life. Autopay gets rid of the paper bills and statements that pile up from banks, service providers, and lenders — which is also better for the environment. It also removes the burden of staying on top of your bill dates and amounts.
Along with the advantages of bill pay come the disadvantages. Autopay works best for people who are already financially savvy. For individuals who have yet to finetune their budget, like to maintain strict control over when money is being withdrawn and from which accounts, or have sporadic spending habits, autopay may not be right for you.
Autopay gives you less control
With automatic payments, a chunk of money comes out of your account each month, and without your immediate approval. For the most part, you are not able to specify when funds are withdrawn from your account, or from which account, which limits how much control you have over the payment process.
If you are considering autopay but would like more control over the payment process, consider asking your biller if you can:
Autopay can lead to overdrafts
Overdraft fees are one of top charges that Cushion detects on customers’ accounts. According to the doxoINSIGHTS report, it’s also one of the biggest hidden costs of bill pay, costing Americans $117 per year on average. If you set up autopay, you’re responsible for making sure there is enough money to pay the bills as they are charged to your account.
Beyond overdraft fees, autopay can also lead to bounced checks and excessive credit card interest if autopay is only set up to cover the minimum payment each month. All in all, autopay can lead to a lot of additional charges that you hadn’t originally planned on paying.
Autopay could make you overpay
Since your bill is automatically charged to your account with autopay, you don’t have the opportunity to review your bill or statement before you’re charged. Your biller may add charges or services by mistake; if you pay these charges automatically, you could miss the opportunity to flag mistakes or negotiate down the cost.
Autopay discourages you from reassessing your spending decisions
With automatic payments, bills and other charges can take you by surprise, especially when it’s on services that you no longer need or use. Gym memberships and streaming services are common culprits. There’s something to be said for manually paying these expenses — you’re forced to ask yourself, “Do I really use this service enough to justify the cost?”
Automatic payments can be beneficial, but whether or not you should sign up for them depends heavily on how you manage your finances and the types of bills that you’re setting up with autopay.
Autopay can come in handy to cut down on the time, effort, and penalties associated with bill pay. However, the out-of-sight-out-of-mind mentality behind autopay is a dangerous one. Setting up automatic payments requires just as much planning as paying your bills manually. That’s, of course, if you’re paying attention to your automatic payments and using the service correctly.
Cushion helps you waste less money, save more, and live a financially healthier life. We monitor your bank and credit card accounts 24/7, find and alert you about pesky fees, let you know which fees are negotiable, which banks are cooperative, and can even automatically negotiate on your behalf.* To date, Cushion has secured customers more than $11 million in bank and credit card fee refunds—and we’re just getting started.
*Cushion only negotiates fees with high refund odds. We cannot guarantee any negotiations, a regular frequency of negotiations, or fee refunds—your bank makes the final call.