By Geoff Williams
Missed payments can lead to a financial tsunami. Forget to pay your electric bill, and you could find yourself in a dark, Internet-less house. Miss a payment on life insurance, and you could lose your policy -- which, at worst, could catapult your family into financial jeopardy if, say, you passed away, and at best, could cost you higher rates once you apply for a new policy. Miss a credit card payment, and it can cost you more money in interest. Forget to pay your health insurance, and goodbye health insurance.
You get the idea. There's very little upside to ever missing a payment for anything, but plenty of people still forget to make them. According to a 2014 survey of 3,021 adults ages 21 and older, 36 percent of consumers had paid a bill after its due date in the last 12 months. In 70 percent of those cases, respondents racked up a late fee, and 38 percent of the late bill payers said they simply forgot when the due date was, according to the Seventh Annual Billing Household Survey conducted by Fiserv, a financial services technology company.
That helps explain why automatic bill paying is wildly popular among some consumers. There's no shortage of ways to set up automatic bill paying. Your bank probably offers the service, and if it doesn't, you could use PayTrust, Quicken Bill Pay, MyCheckFree or MintBills, just to name a few of the big names out there (not all of these are free).
The appealing part of automating bills is, as the saying goes, you set it and forget it. If you have plenty of income rolling in, and your budgeting is down to a science, really, what's not to like? But while automating bills can be a useful way to manage money, it isn't foolproof. If your intent is to automate your bills so you never miss a payment again, here are a few considerations to mull over.
Autopay Can Mask Behind-the-Scenes Mistakes
Amy Baxter is a pediatrician and CEO of Buzzy4painrelief in Atlanta. Baxter's company develops reusable, inexpensive products for personal pain control, but now she's feeling financial pain, thanks to a snafu with her cable company. She had been automating payments for her fax line, and when she moved to a new office, her cable company said it could switch the line to the new place while keeping her data plan price the same as before. All seemed fine for about three months.
"Our statement had the same amount on it, just as promised," Baxter says, noting she'd been paying $89 a month, and she continued to pay $89 a month. "Except that last week, we get a call that they're going to shut down our service, and we owe $800. For three months' service."
It turned out the company had been charging Baxter $89 for the old phone line -- through autopay -- but hadn't been charging her for the new one, which, despite what she'd been told, was now $189 a month. She also learned that she was on the hook for installation fees. But because autopay was continuing as usual with the $89 charge, Baxter had no way of knowing or suspecting that the cable company had made a mistake that would ultimately cost her.
"We thought we were paying with autopay, and instead horrific bills were racking up," says Baxter, who spent eight hours over three days communicating with 14 people at her cable company, trying to sort everything out. She says she still hasn't had the charges waived.
Autopay Works Better With Fixed Numbers
Although inflation means some of your bills won't always remain the same, many bills don't change dramatically from month to month. Your mortgage and car payment will remain stable, for example, unless you refinance or pay one of them off. Your cable bill is generally static, unless you order movies. But your electric bill may fluctuate. Your water bill, too. If you have a bill that's erratic -- low one month but surprisingly high the next -- and your bank account suggests you're living paycheck to paycheck, you'd be better off nixing autopay for those bills unless you enjoy overdraft fees. Of course, you've probably already figured this out the hard way.
Autopay Makes It Easier to Forget About Your Bills
The point of autopay is that you can forget about your bills -- but you don't want to completely forget about your bills because at some point, you're likely going to run into the same trap Marilyn Paige stepped into.
Paige, who owns a marketing firm in Denver, pays her bills through her bank's automatic bill paying system. One of those bills is a store credit card she uses frequently and pays off in full every month. Then one day Paige's bank changed bill-paying providers, and while some of her bills rolled over seamlessly, she had to re-enter payment information for certain bills. Paige dutifully did so, but didn't realize that her store credit card had, without her permission, stopped sending her paper bills. She entered a stack of paper bills into the new bill-paying system, but in the absence of paper bills from the store credit card, she forgot to re-up the automation.
Imagine her surprise when she then received a notice with a $20 late-fee charge, which she later was able to get dropped. "So frustrating," Paige says. "And my bill was only for $18." This wasn't autopay's fault, of course, but it pays to remember that autopay doesn't come without hiccups.
Credit cards Can Be a Useful Way to Autopay
If you have a healthy line of credit, you could autopay some or all of your bills with a credit card -- and then, every month, like clockwork, pay off the credit card. The pluses are that if a bill is higher than you expected, you needn't worry about cash disappearing from a bank account, another payment going through and then suddenly becoming awash in overdraft fees.
Another bonus is that if you're overcharged, you might have better luck getting the charges reversed than you would getting cash returned to your bank account; and as long as you're disciplined about paying off your credit card every month, you're helping your credit score, to boot. The only downside to this strategy -- and it's a big one -- is if you miss your credit card payment.
Don't Autopay the Bills You Want to Remember
Say you started the new year off right and joined a gym. Unless you have a particularly sharp memory, or are the type of person who checks your bank statements religiously, don't automate for at least a year. If you forget to go exercise, it stands to reason that you may also forget that you're paying for that gym membership.
You'll also want to be especially careful about automating bills that only charge you once or twice a year, especially if it's for a service you're not entirely sure you want to pay for indefinitely. In other words, even if you want to forget about your bills, it doesn't pay to have full-blown amnesia.
By Geoff Williams