The personal finance world tells us to use autopay to avoid missed payments. This is critical information because payment history makes up a whopping 35% of your credit score. So, it makes sense that you would want to automate this process to remove the human element. This step is most helpful if you have a hard time remembering to pay your bills on time. Automation can be a lifesaver but here are the top 3 reasons you should not use autopay from your creditors.
1. Control access to your accounts
When you set up autopay directly with our creditors you are giving them permission to withdraw funds from your account. This seems like a solid plan until you forget about the payment dates. There is nothing more stressful than getting that text from your bank that your account is overdrawn. This also limits the number of individual companies that have your account information on file. Data breaches seem to be reported monthly. Having your banking information in the least amount of databases as possible is the best defense.
2. Unexpected withdrawals
Having your creditors make an error and remove more money than you originally agreed to give them. I had a client whose mortgage company recently withdrew their mortgage payment twice. Luckily, she was able to cover the expense until it was corrected and the money was returned. However, the stress that was caused by this double payment was immense.
Scheduling automatic payments with your creditors can result in several companies accessing your account at varying times throughout the month. If you don’t keep a close eye on your account and the calendar they can be hard to track.
Having multiple companies accessing your accounts at random dates throughout the month can also cause cashflow issues. Most people have about 8-10 recurring payments to each month. If you are not using sinking funds for expenses, you are playing Russian roulette with your account. According to the Center for Responsible Lending, in 2019 banks raked in 11.68 billion dollars in overdraft fees. That number has grown even larger since the start of the pandemic in 2020.
Life is hectic enough without adding the frustration of covering the original amount plus the average $34 overdraft fee. Besides I’m sure you don’t want to just give the bank free money every month.
What to do instead
Most banks now have the option of setting up bill payments directly from your bank account. This is a free service that is included as part of your bank account. It can typically be managed from a computer or from your mobile device. This gives you the flexibility to easily schedule your bill payment dates from your spending plan.
This service works by electronically linking your bills to your bank. This gives your bank permission to send money directly to your creditors on your behalf. The bank will tell you when you can expect your payment to arrive. This allows you to schedule your payments to arrive prior to your due dates. Some creditors participate in statement dates as well. Once you sync your accounts, they will send information related to your bill to your bank. You will know when that bill is due and what the minimum payment will be. Having that information at your fingertips keeps you from having to search balance.
If your creditor does not participate in electronic payments, the bank will send a paper check in the mail on your behalf. You simply choose when you want the payment to arrive by and they will print, stamp, and mail the check to them. This is s a great way to pay landlords or other services directly. It also saves you the time of writing checks and mailing them yourself.
No stamps needed
There are several benefits to setting this up directly. The first benefit is being able to manage your cash flow in real-time. Having your scheduled payments always listed for you can plan your spending accordingly. You no longer have to guess when bills will be withdrawn or play the game of quickly moving money back into your account because you forgot a due date.
The next benefit of not using autopay is being able to see where your money is going at a glance from your bank account. When you log into your bill pay section of your online banking system, you will see all of your upcoming payments. Having this information in one place eliminates the anxiety of feeling like you have missed something. It also gives you peace of mind that you are managing your finances in a way that is aligned with your values.
Overdrafts happen to the best of us. But they can become even more common when you have several companies pulling money out of your accounts. Setting up bill pay from your bank account gives you the ability to identify any budget shortfalls quicker by having all your upcoming payments displayed. When you notice that there may not be enough funds to cover an upcoming payment you can schedule a transfer from your sinking funds (link to sinking funds article) prior to the scheduled payment date.
If you notice a pattern of having to move funds around often in order to make sure your bills are covered then you may want to contact your creditors and change your payment dates so that they are more aligned with your paydays. Or you may need to reduce your spending in other areas in order to reduce the need to shuffle funds.
Take control of your spending
You have the power to master your finances. But the first step to doing this consistently is creating systems that simplifies the process for you. Life is really busy these days. Between work, family obligations, and social obligations it can be very easy to let your finances flounder. Creating a spending plan and using your banks native bill payment feature will give you the confidence you need to manage your finances with ease.