I got into this game late – paying bills automatically. In fact, I’ve written about the dangers of blindly paying bills (i.e., not bothering to make sure the bills are correct when you pay them). But after seeing how I could receive $50 by just paying a bill with my credit card, I decided it was time to look more closely at the options.
Automatic bill pay
Automatic bill payment can be set up through your checking or savings account, or through a credit card. The billing company will withdraw (or charge) that month’s bill to your account on set date. You don’t have to worry about forgetting a payment and can rest assured that the payment will be made on time.
Automating payments can make your life easier: they are easy to set up, can save you time every month, and make traveling less worrisome – no need to be concerned with paying the utility bill from London, for example. Plus you might end up saving money on late fees because your payments are consistently arriving on time.
One key though is you shouldn’t let the ease of use tempt you to ignore your finances. Even though your bill is paid automatically, you still need to review it to verify it’s accurate; check to make sure you’re charged the right amount for the total bill, then go through line by line to look for other discrepancies.
Have some wiggle room
Whether you decide to implement automatic billing through your bank account or credit card, build in some cushion. That means enough cash left over monthly (or enough credit availability) to pay your upcoming bills without being hit with fees. You should make a list of your regular bills that you will automate to ensure there will be enough in the account when the bills hit.
Credit or cash?
Some experts advise to never make automatic payments on your credit card. The obvious worry is you might get in over your head if you have had credit management issues in the past. Others state that you may be leaving money or points on the table by not charging your bills. It really comes down to you – if you’re comfortable using your credit card and know you will pay it off, there’s no reason not to. If you are already making minimum payments on your card, an automatic payment plan using your bank account is the best option
Credit
Like I said, I got interested in this because I realized I could make a quick $50 by charging my car insurance bill on a cash-back credit card. But there are other reasons you might want to consider using your credit card:
- Longer lead time. If your car insurance bill comes due on July 10 and you charge it, you may not end up paying it until the following month. This extra time leaves you with opportunities to use the cash for other purposes or simply have a little more flexibility in your life.
- Snafus. Sometimes billing companies make mistakes. If you charge your insurance bill and they add an extra zero to the amount, you can use the credit card dispute resolution service if the insurance company drags their feet refunding your money.
I can’t stress enough that you must be able to pay off your bill monthly to even consider automatic bill pay on your credit card. If there’s even a chance you won’t be able to pay the bill, consider your bank. Other cons include:
- Enough credit. Make sure that you have enough credit availability to pay all of your bills. Many cards will either refuse items that push you over your limit or charge you a fee.
- Credit utilization. Your credit score might take a hit. When I charged my insurance bill, my credit utilization tripled. Okay, it was only 3% to begin with, so it jumped to 9%. Still, that reduced my credit score by 13 points. Not a huge deal, but if you’re teetering between a good and bad credit score, increased utilization may push your score down.
- Credit card number. Perhaps there were strange charges in Nicaragua or you lost your card. You receive a shiny new card and are all set. Except you’re not. When your credit card number changes you have to contact all the vendors who are being paid automatically to provide the new information.
Note – your credit score could benefit from on-time payments (no matter if you use a credit card or your bank account) if you’ve had a history of late payments.
Banks
Setting up automatic payment through a bank savings or checking account relieves you of the stress of opening a huge credit card bill each month or seeing your credit score drop. Additionally, if you’re not paying off your card in full, using a bank will keep you from adding to that burden. But there are some cons as well:
- If you don’t have enough cash set aside to pay your bills, you could be hit with an overdraft fee.
- If the biller charges your account incorrectly, the money is gone and it will be up to you and the vendor to work out a solution. Normally your bank won’t come to your rescue.
- No bonus (cash or points back) for paying bills you would normally pay anyway.
Manage the due date
I like paying all my bills at once. It’s easiest just to review everything and move on. I have contacted the weirdly-timed vendors and arranged to have them arrive at a time more suitable for me. If you are on a twice-a-month pay schedule, maybe you want half your bills in the first part of the month and half after. Contact your vendors to see if they will move the due dates to work better with your schedule.
Tech is your friend
If you decide to go this route, set up automatic alerts wherever you can. Your vendors should ping you before the bills are due, letting you know the amount. Review them for accuracy. Check your credit card balance/bank account balance just before the bulk of your bills are due to make sure you have enough money (or have them text you when your balances are nearing the danger zone). You can even consider linking a savings account to your checking account to provide extra buffer (or contact the credit card company to see if they will raise your credit limit).
You may not have a choice
When I tried to sign up to pay my electric bill through my credit card, I saw that I could only sign up for automatic billing with a bank account. I could have gone through their one-time system to use my credit card, but that required going to their site, then to another site, then entering the card information. And I would have to do that every month. Similarly, with the mortgage bill, there was a free option to use a bank account but a fee for using your credit card.
Automatic bill paying can be a huge help for those who barely have time to think, much less pay bills. Don’t let it go from being a hassle to something you can ignore. Stay on top of your accounts and check your bills regularly to ensure accuracy.