Everywhere you look, it seems like someone is offering a new life hack that will save you time, money, heartache, and everything in between. One popular technique to save money is to institute automatic payments for your bills (i.e. autopay). While this approach can benefit your personal finances, there are some drawbacks as well. Read on to learn some of the pros and cons of autopay.
Overall, automating functions of your life, from your playlist to your finances, can certainly save time and stress. However, it can harm your financial standing if it comes at the cost of becoming complacent with your finances.
What Is Autopay?
Autopay is essentially using technology to pay your bills automatically. There are two basic ways in which this can be set up: either through your bank account or via the vendor that you owe.
If you have a monthly fee that rarely changes (i.e. a mortgage payment), you can set up an autopay mechanism whereby your bank or credit union will automatically send a check or money transfer to the counterparty you owe.
Alternatively, if your monthly fee varies (i.e. a utility bill), you can give the vender permission to debit your account for the amount due.
Essentially, both of these autopay options function in the same material way. Once they are put in place, your chosen financial transactions will occur without your active participation, and your bills will be paid automatically.
What Are the Advantages of Autopay?
There are a number of positives of using autopay, such as:
(1) Saving time and energy: The more you are able to automate your finances, the less energy you will need to devote to them. Especially for bills that remain constant, it can make a lot of sense to simply “set it and forget it.”
(2) Avoiding missed payments and late fees: Paying your bills late can lead to late fees and bad marks on your credit score. Automating this process will ensure that you avoid these penalties, while helping to improve your credit score. (At 35% of the overall score, your payment history comprises the largest portion of your credit rating.)
(3) Less clutter: Automatic payments are often made electronically, preventing the build-up of paper and bills around your house. This is not only better for the environment, but can also lead to a more organized and relaxed household.
(4) Potential discounts: Because it makes their life easier, some vendors might offer a slight discount for choosing the autopay option. These savings can add up over time.
What Are the Downsides of Autopay?
Though there are plenty of merits for using autopay, there are some drawbacks as well. These include:
(1) Risk of overdraft: If you are not monitoring the account that is making the payments, you may run the risk of issuing checks you cannot cover. If this happens, your account will have a negative balance, which often times is accompanied by a penalty.
(2) Mistakes could happen: No system is completely infallible, and it is possible that an error could occur. This could include being charged the wrong amount, or even being charged twice for the same transaction.
(3) Lack of awareness: Not every purchase is created equally, and it is certainly possible that you may not end up taking full advantage of every subscription or membership that you sign up for. If you are not monitoring your spending, it is easy to forget that you are paying a nominal fee every month for an item or service that is collecting dust.
Trust But Verify
Going the autopay route can benefit your finances. However, like every single personal finance decision, there is a balance to strike.
While it is healthy to outsource certain aspects of your finances, it is still important to be aware of your overall spending and savings.
Setting up autopay is not an invitation to ignore your finances. In fact, the opposite is true. Even if your bills are being paid automatically, there is still merit in taking time to review your bank account balance and consider your spending choices.
Beyond confirming that no errors or fraudulent activity occurred, taking the time to verify your decisions will allow you to proactively determine if you are using your money as you intended.
Conclusion: Being Intentional With Your Finances
Automating your payments can save you time and allow you to avoid the headaches of late payments and penalties. By and large, it is a useful and effective way to help you manage your finances.
The key is to remember that it is a means to an end, and not a goal in and of itself. Your overall objective should always remain to manage your finances in a responsible manner, balancing your short-term needs with your long-term hopes and dreams.
Autopayments can help, but regular monitoring and review remain a necessary part of good financial hygiene.
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