Table of contents
Have you heard of automatic bill payments? Banks and financial institutions know how time-consuming and stressful paying your bills can be, which is why many of them offer this service where you can set up automatic payments and forget about missing any. But how does it work? What are its advantages and disadvantages? Below you will understand more about automatic payments and how to implement them in your financial life.
What is an automatic bill payment?
An automatic payment system is an arrangement you make with a bank or lender in which you allow them to take money from a bank account of yours and pay the bills with that specific lender. There are two types of automatic payments, push and pull. “Push” payments happen when you arrange with your bank or financial institution to transfer the money to a service provider or lender. You will set out this transfer with your bank or institution by providing them with the biller information, amount due, due date, and the bank account you want to use.
Conversely, a “pull” payment is automatically withdrawn from your bank account or credit card to the service provider with your previous authorization. If you choose Pull, the lender will need your credit card information to process a charge for each period of the bills due – this way, you will have to pay your credit card balances directly instead of the service provider.
When should you use it?
In order to use automatic bill payments, you need to monitor and organize your finances. Start by adding smaller bills, so you can still plan which payments to make in the given period and have enough money for savings, investment, and all your other expenses. This tool works best for bills that need payment often and have an expected amount on each billing cycle– this could be your streaming services, cell phone bill, internet, and cable service.
- It is easy to set up
- You can improve your credit score (by having consistent payments)
- It will save you time and take your worries away.
- You will save money by avoiding late fees and other penalties.
- Some lenders have reductions for clients who set automatic payments.
- Risk of being overdrawn (avoid this by monitoring your balances)
- If you don’t have enough money to cover an automatic bill, you may face high fees.
- You may forget an automatic payment and still be charged for services you no longer use.
When to avoid using automatic bill payments
While automatic bill payments come in handy and take some weight off your shoulders, it may not be something you always want to do (i.e. If you are self-employed and don’t have a regular income, or when you struggle with keeping a record of your expenses). Start by adding a few automatic payments to your card, keeping in mind that you will need to pay your in full. If not, it will be a counterproductive move.
Using automatic bill payments strategically.
Use this tool wisely to get the most out of its many benefits. Don’t forget to:
- Make a list of the automated payments you set up.
- Know which ones work best – if your amount due changes each billing cycle, it is best to set it up directly with the service provider. Rather, if it is a steady bill, automate the payments with your bank or institution.
- Set electronic alerts with your bank – Many banks and financial institutions have email alerts to notify you when your balance is low.
- Ask for credit card charge notifications
Measures like this (if used correctly) can help you maintain a healthy financial life, which is key to achieving many of your life goals. We also recommend monitoring your credit score frequently to take early action in case you see a sudden drop.