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Exercise Caution While Automating Bill Payments

The following is a guest post from SB, who blogs at One Cent at a Time, where he teaches about getting ahead in life, encompassing personal finance and productivity related topics like How to be rich and How to increase salary.

When it comes to automating your finances, from phone bills, to electricity, to mortgage and car loan repayments – you can automate it all and enjoy the time in more productive activities with family or in other income generating activities.

But is it the wise thing to do? Should you allow your billers access to your bank account information? Isn’t it risky?

Two risks are there in automating your finances

  • Risk of you billing company overdrawing from your checking account, or drawing money after your account cancellation.
  • Risk that you will not pay enough attention to scrutinize the bills you receive.

If for any reason you open an account with a fishy service goods/provider, the first risk becomes the major one. Usually the companies we do business with for our loans, utilities, phones and movies are well respected with respect to security and safeguard of your bank account. Even if some of them try to rob you off your money, they do it in legal ways. In terms off fees and penalties.

That makes the second risk much bigger than what we could think off. The problem starts happening when careless people automate all their bills at once, especially the bills that fluctuate each month.

It can be overwhelming and can easily go out of control if you are not diligent in scrutinizing  and keeping records of your spending. Since you no longer have to worry about paying, it becomes “out of sight, out of mind”. We tend to get lax when we don’t have our hands and eyes on the bills. Making us vulnerable to machine error or policy changes on our service provider’s side. We fail to notice an unusual charge hidden in the bill.

The point is, if you decide to automate your bill payment, you need to be hands on. You have to budget to make certain you can cover your expenses, you must keep track of your spending, bank withdrawals.  In reality, the only process that is “automated” is the process of money being taken out of your account. You are not physically writing and mailing checks.

If you master this skill, you should go for automating bill payments as it is one of the ways to pay your bills on time.

An easy way to keep track of your bills if you decide to automate is to use the billers’ website. I won’t recommend you to opt for any bill paying services. Still, there are few exceptions, I keep track of net worth using Yodlee, and they offer bill pay service which I like to use.

They offer complete bill management services, payment features and they will support if you are face a problem. You can setup alerts if your bills are higher than a limit you set. It will also send you alert when the bill is due. Thus, keeping you on track of timely bill payments and help you exercise control/caution when a bill goes too high.

You can also pay bills directly to billers using their own bill pay service. I pay off all my credit card accounts using their own auto pay program, which deducts the total due amount every month from my bank account. This ensures zero credit card debt round the year. yes, I denote an hour every month to go over all my bills.

If you just started with automating your finance, you should start slow and proceed cautiously. Initiate the process by automating your smallest bill, perhaps the water or cable bill. Or the ‘not very greedy’ utility companies. I started with FPL (Florida power and Light).

Only after I gained confidence and figured out that I hadn’t lost any interest in scrutinizing monthly biils, I went ahead and automated rest of my bills.

Only if you are comfortable then add more bills but don’t forget to keep track of each bill, every items on the bill, every charge in it. At the end of it you are the only person responsible for your finances. If a mistake is made on a bill and you don’t catch it, you will have to do a lot up followups later on to resolve the problem.

Readers, which part of your finances do you automate?

Crystal’s Comments:  We automate all bills except for the credit card bills themselves – those I pay after entering every single item into our budget.

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25 comments to Exercise Caution While Automating Bill Payments

  • I automate things like internet – the bills that will stay the same. I like to manually pay the ones that could vary just to make sure the companies aren’t trying to overcharge me because it has happened before. :)

  • I take the same approach as Crystal, every bill is automated except for the actual credit card bill. it makes it incredibly easy every month to just check one spreadsheet to make sure all of our bills have gotten paid. I also really enjoy the cash back rewards also.

  • PFM

    Only our mortgage is automated, I like to view each bill before it’s paid, I still pay them all online but I think it helps to feel the “pain” of the bill, then you’ll possibly look for ways of reducing it (like our cell phone bill!)

  • I automate all expenses that are fixed (i.e. mortgage, car, 529). Anything that is variable (i.e. utilities, credit card) are done manually. I have set up the account information on my bank’s website, so I just spend 1-2 minutes cutting a check to the variable accounts from my bank.

    To your point, it reduces the risk of them overdrafting and I scrutinize the bills more closely.

  • We automate everything possible, variable or not. I think our credit cards are automated too but we pay them off several weeks before the due date so I’m not completely sure. Honestly, this post seemed overcautious to me, but I am very “hands on” with our finances. Our variable automated payments are set in our budget to be the maximum we have paid in the last year, so that helps with not overdrawing the expected amount. I suppose if you didn’t have that history of expense tracking there could be surprises.

  • I automate some of my bills, but I thoroughly check them when the bills go through because I have been overcharged before.

  • Wendy

    I automated my student loan to make sure I was never late. I ran into a problem when my student loan was transferred to a new servicer in December. In January, my old student loan servicer tried to withdraw a payment and caused my old bank account to be overdrawn. Since there was no money in the account, the charge was returned, but I was charged $35 by my bank for the overdraft. I was able to contact my bank to reverse the overdraft fee, but then this month the charge tried to post again. I’m seriously reconsidering any automatic payments.

  • I only automate one bill, and you’re right, I never ever check it. I should probably get in the habit of that, but it’s the same amount each month so I just see it on my credit card statement and go on my way.

  • Helen

    I personally prefer to not automate anything – I want to scrutinize things. Like DH had originally signed up for his cell phone with auto-pay (to our credit card) and I said that didn’t really give us a leg to stand on if we wanted to dispute a charge. They already had their money so why would they listen? I also always think of “what if” because holidays can change when our paycheck is direct deposited, but won’t affect the deductions. The only thing automated is our 529 plan that comes directly out of our checking account each month.

    We did automate savings, and I recommend people do that! Our employer allows multiple accounts for your direct deposit, so we have a chunk of each paycheck sent to our ING and then within ING I have monthly dispersments to our other sub-accounts (money for Christmas, home repairs, etc).

  • I only set up automatic payments with organizations, I can trust. If there is an opportunity for overbilling, I won’t do this. I do not have any organizations debiting my checking account.

  • Yeah, I learned the hard way NOT to automate credit card bills – I actually just wrote an article earlier this week about that unfortunately lesson over on Suba’s new blog. OUCH. The result? Fees and embarrassment – the double whammy!

  • I only have my cell phone bill automated. A few years ago my former insurance company took a double payment out of my checking account and caused several items to bounce. They did eventually admit their mistake and reimburse me for the bounced check fees but it was a major hassle and took months to clear up. Since then I’ve been very wary of automated bills.

  • I automate everything I can and have for years.

    Whenever possible, I have all bills and expenses auto pay against a credit card. The only exceptions are my mortgage and a few services that don’t take credit cards (piano lessons, etc). I rack up a fairly large credit card bill, but it has cash back rewards. Each month I then thoroughly review each charge on my card before the payment is due for any errors. After this review, my credit card pays itself from my checking account.

    A few people have commented that auto payment reduces leverage they may have with vendors, I actually see it the opposite way. If I have a problem with a vendor, I can dispute the charge with my credit card company and not hav to pay until the issue is resolved. I like having AmEx in my corner if I need them.

    I do not authorize direct access to my bank accounts except for two cases: mortgage gets auto drafted as this gave me a slightly better rate, and me credit card auto drafts as I described above.

    Beyond bill pay, I also have money which automatically transfers to savings accounts and investment accounts.

    Autopilot is a beautiful thing, but you do need to keep an eye on it.

  • I think I need to automate more. Some stuff is fairly simple other stuff not so much. Depends on how tech savvy your billers are.

  • I automate almost all savings and investments and most/all of our bills but not credit cards. I’m extremely ocd with credit cards and pay multiple payments per month after I look at the payments. I usually end up with a credit balance when bill time comes… I know… a bit nuts.

  • julie

    Make sure you always have money in your account; make sure someone in your family or subscequent other half knows what to do if something should ever happen to you if you automate. I am divorced, and when I had cancer, lost my job and health insurance, eventually my money ran dry; and my family had no idea what bills were being paid or how to get access to the bills. I didn’t like receiving insufficient funds notices when I was in the hospital bed. I now receive manual bills, and I do use bill pay.

  • Heather

    Why on earth would you give your banking information to be stored by each individual biller?? Online bill pay through your bank or credit union, it’s the wave of… well, the 1990’s.

    Every payment that is made is automated through my credit union bill pay website. Each payment, all in one tidy list. Each bill is scheduled in Quicken as well. Every week, I reconcile my Quicken plan with my bill-pay website for the following two weeks of bills. If there are no discrepancies, reconciling transactions for each of 5 checking/savings accounts and 1-2 credit card statements, plus checking the scheduled payments against what I expected, takes about 20 minutes (30 if there are discrepancies to solve). Anything that is different from the plan or shows an odd transaction gets a phone call first thing Monday morning.

    I have everything automated because in my mind, I’m just checking for discrepancies. If it’s not automated, I have to choose my priorities and make a decision every week of which bills to pay on what days, and might end up forgetting one. If we’re $150 short one week*, it’s a lot easier to choose to play the float on something and risk paying it late than it is to pull that money from savings and set up a plan to re-pay it. But, I have also carefully orchestrated all the bills to be fairly evenly distributed on payments, so we don’t end up with $1000 in bills due one week and $200 due the next.

    *My partner is a server, some weeks are better than others. We have a slush fund for the purpose of covering short-tip weeks during the winter months when sales are low.

  • Wendy

    My utility company uses Western Union for credit card payments, but their own system if you use your checking account. I used the credit card payment option once and my credit card number was stolen. So not every company gives you the option to pay by credit card.

  • Thanks you all for liking the post and commenting. As anticipated, everybody manages his/her bill payments in their own way. Which is not bad at all. We should do what works best for us.

    Only couples of points to remember, time is the most scarce resource in this world, we should manage our time effectively and at the same time should not let financial blows hit us just because we were not paying enough attention.

  • We pay all of our bills online – but none of them automated. I figure if I’m handing my money over to a company in exchange for the service – I’d like to feel like I’m “in control” of it.

  • Another risk is paying your bills twice. Yes, I forgot I had automated my mortgage and paid it manually. That was quite a budget hit!

  • I automate everything through different channels. The credit card gets paid in full every month (and that’s set up through the card itself) and everything else gets done in billpay through my credit union (which is free).

  • Although it does make life a lot easier, the “out of sight, out of mind” idea puts you at huge risk of being overdrawn in a certain account. I know that for me, when I don’t think I need to worry about when the money is being taken out, I also wouldn’t be consciously thinking about if there was enough money in there to cover what will be taken at a certain time in the month. Over draw fees may be a big detriment to your bank account if you don’t keep a close eye on your money, and what day of the month the company will decide to take that money from you.

  • I have no problem automating small monthly fees but I like to be in control and aware of larger financial obligations like the mortgage, credit cards etc…. Even knowing when it would be withdrawn, I’d still fear slipping up and mismanaging my finances.

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