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Automatic payment for your bills: What's the catch!?
August 14, 2014 2:57 PM   Subscribe

I haven't used automatic billing/payment for any of my monthly bills - where the company takes out the money to pay a bill from your bank account or credit card - yet. I'm considering to begin doing this because I'm tired of keeping track which bills I have/haven't paid yet and spending time to do so. Is there any catch to using it or things of which I should be cautious?

I've been paying all of my bills manually (student loans, utilities, etc) and I'm wondering if I should just set up automatically billing of where the company will take the full payment each month on a specific date.

My main concern and paranoia is that I will be overcharged or incorrectly billed and that by already paying it, I couldn't reverse the charges and I lose any leverage that I would have with the company. Is this true?


I am also still using a debit card for all of my purchases. I am transitioning to my first credit card soon. When I do so, I would move all of these monthly purchases to automatic payment to my credit card or to my bank account and then for the ones charged to my credit card, have the full balance paid each month automatically from my bank account). Is this possible? Is it wiser to use automatic bill paying through a credit card or a bank account? Pros and cons for that?
posted by fizzix to Work & Money (22 answers total) 2 users marked this as a favorite
 
This is very common in the UK, where they are called direct debits. The main common catch here seems to be that the utility will bill an estimated regular amount per month, purportedly to even out the differences between winter and summer demand. In reality this can mean many people run up quite large balances with their utilities which it can be difficult to get repaid.

Personally, I won't use direct debits since a previous supplier got my final meter readings mixed up and billed me £8500 for 6 weeks in a small flat.
posted by biffa at 3:07 PM on August 14


Watch for hidden fees; $5 per month per bill can chew through a lot of cash. Many utilities etc. will not allow you to auto-debit credit cards (or perhaps it's on the credit card's end; I'd love to be able to pay my mortgage with a credit card and earn points every month). I usually keep an eye on what the total bill is each month, and if it's unusually high I'll spot-check for problems. Aside from that, just make sure you have enough cash in your account to cover all of the bills if they hit at the same time -- this strategy does not work if you're anywhere near living paycheck-to-paycheck.
posted by craven_morhead at 3:07 PM on August 14 [1 favorite]


With a credit card, if the company makes a mistake, you can dispute the charge and you are not out money until it is resolved. If you are in the US, I would definitely advocate using a credit card for this reason.

It's a good idea to keep a list of all of your recurring payments, so if you lose your card or have to get a new card for some other reason, you can make sure to switch all your payments to the new card.
posted by nat at 3:08 PM on August 14 [1 favorite]


The catch is that they take the money out exactly on the due date every month, so you need to make sure you have money in your account to cover it because otherwise you'll be charged a late fee in addition to any fees incurred by insufficient funds.

If you can do it through your bank account, I would go that way - bank account numbers change far less frequently than CC numbers.
posted by pdb at 3:09 PM on August 14


My main concern and paranoia is that I will be overcharged or incorrectly billed and that by already paying it, I couldn't reverse the charges and I lose any leverage that I would have with the company. Is this true?

I've never heard of that, but if that is true, then autopay is better than manual payments. Autopay typically lets you choose to pay at the very last possible day. If you pay manually, you'll tend to pay earlier than the deadline (or at least you should, to avoid being late).

One catch, which I've only experienced once (and I have a lot of autopays) is if you don't notice that there's going to be a lag of one billing cycle, i.e. you have to manually pay the next bill. So, within the month after you set it up, you want to be on alert and make sure it's working properly.

Aside from that and the other things mentioned in this thread, it really shouldn't be surprising that a company is giving you as a customer exactly what you want. That's what companies normally try to do, to compete with each other for your business. So while it's fine to make sure you're not missing any hidden costs, it's not like the whole idea is so suspicious that it can't possibly be what it seems.
posted by John Cohen at 3:15 PM on August 14


Everyone above is right, of course. But to be in more detail: it totally depends on each company you need to pay bills to. T-Mobile, for example, will take credit cards as autopayments for free. Which is great, as you say, for the cashback/points whatever. While my water bill only will do a bank account for free.

There are a few possible issues with automatic payments. They do it exactly on their schedule that you authorized even if you don't have enough money. If you change banks/get a new CC number or expiry date you need to update it. But, to me, the biggest one for automatic bank withdrawal in the US is that once you give them that information and authorize it, they can, at any time, take as much money as they want and it can take weeks to get that money back (the US banking system is pretty stupid in that regard). As near as I can tell, that's rare enough that, for me, the risk of paying late is greater than that risk.

But I do have every auto payment I can be through a CC to avoid that problem (and get cashback).
posted by skynxnex at 3:18 PM on August 14


I pay all of my bills online and I prefer to pay from my bank account, some are automatic and some are manual (i.e., I enter the amount, pay date and hit submit). I prefer this to having creditors take the money out. I think only my car insurance is paid automatically. It can be a huge pain to stop automatic payments.

I have greater control using my own bank account. Bills come before they're due, so I'm able to see any bill before I pay it. I can cancel the payment if there's an issue I want to resolve before making payment.

You can usually pay your bill using a debit card, credit card or bank account. There's no reason to pay using your credit card unless you're trying to to get rewards. I don't understand transitioning to a credit card and using it for bill pay. Are you trying to build a credit history?
posted by shoesietart at 3:22 PM on August 14 [2 favorites]


I use autopay and have for years. So far, (knock wood!) I've never had a problem with being debited some outlandish amount due to a mistake on the service provider's part. I have not been charged a fee, either. IME, most companies love autopay because it ensures they get paid on time and in full.

It probably won't work if you have to juggle payments, because your payments will come out of your account at the same time every month. Many places will let you set up the payments so they occur at a certain time in the month, which means you can schedule payments for the day after your payday or whenever.

The drawback with using a credit or debit card is if you close the account or have to get a new credit card for whatever reason. I had to cancel a compromised card and that meant having to change payment methods on the accounts that used the card. Bank drafts do not have this problem. But if you use a credit card, you can rack up points, which is nice.

Best of all - no late payment dings due to absent-mindedness or being out of town the week the payment is due, and everything gets paid in full every month. Great for the ol' credit rating. I love autopay.
posted by Rosie M. Banks at 3:23 PM on August 14


Suggestion: Dedicate one card to autopay. Because when you get skimmed, or Target gets hacked, it can take months to unroll and fix all the accounts that were set up to autopay that are now failing.

After a few of those, we do one card for autopay, one card for physical and "enter the number" online purchases. Life works much better.
posted by straw at 3:35 PM on August 14 [1 favorite]


I'm with shoesietart in that I prefer to set up automatic payments from my checking account using the credit union's online banking rather than through the creditor's or vendor's autopay. To me, the difference is between active management (me PUSHING the money out of my account to the vendor) vs. passive management (the vendor reaching into my account and PULLING the money out). I suspect that 99% of the time the two methods are more or less equal, but I still like the active management better. Maybe I have control issues?
posted by rekrap at 3:38 PM on August 14 [2 favorites]


I personally do as many recurring bills as I can via credit card, and set up balance billing for things like electric bills if offered to make the monthly costs predictable.

The only inconvenient part is when I have to update the card information due to expiration or fraud issues.
posted by odinsdream at 3:58 PM on August 14


+1 on setting up automatic bill payment through your bank as the pay-er (push) rather than setting up automatic withdrawals with the pay-ees (pull). You have more control that way.

Fixed recurring payments are easy: 'automatically send my landlord the fixed amount $X, and my mobile phone provider $Y, on the 1st every month, don't even ask me' for the repeating fixed amount bills.

For ones that vary (adepending on your bank's setup), what's happening is that the biller is sending electronic information to the bank, which then alerts you to the bill and sends you an email or text prompt to do something about it - "Credit Card bill is due by x/xx, amount $123.45 - do you wish to [] Pay Entire Balance or [] Pay Specific Amount". You click on one option or the other and that authorizes the bank to send the funds to the pay-ee.

Electronic paperless bill payment is one of those rare win-wins: you save the time sitting down at the kitchen table with a checkbook and a bunch of envelopes each month, and the bank saves all the money they used to spend on processing paper checks.

You can also insulate / compartmentalize your money a bit by finding the bank that's got the best free checking account with bill pay included, and funding that account with an automatic transfer from your savings / payroll account that's the total of your maximum bills.

It seems like it might be a hassle, but you can end up with the following: Employer pays you via Direct Deposit to your Savings account; Savings account automatically transfers a fixed amount to Checking every month to pay bills with; Checking account automatically pays fixed recurring bills, and sends you a quick 'pay all or part of this one?' message for the variable ones. All money not in your bill budget remains in Savings, the Checking account used for payments only has access to a fixed allowance (if you're worried about fraud/mistakes) every month, and since you set that fixed amount by guessing at your highest amount (heating bill in the coldest month, etc) and rounding up a little, you'll probably finish the year with some funds left over in Checking, which you can use as mad money, an overdraft cushion, etc.

2 notes: First, this assumes you have enough to meet your monthly expenses with at least a bit left over. If you find yourself doing the 'do I pay for heat or groceries this month' dance, then e-bills are probably going to bite you in the ass one way or the other. Second, since everything's paying itself automatically, you're not examining your bills in detail anymore. So especially with credit cards, you WILL end up doing something like not noticing that some Free Trial that you forgot to cancel has auto-renewed itself and you've been paying 4.99/mo to XYZ for almost a year without even noticing. Watch for those!
posted by bartleby at 4:22 PM on August 14


I refuse to do autopay because if they screw it up and it takes two payments at once (for example) then everything else you have coming out of that account will bounce and it will be an unholy mess to fix. It's also a challenge to cancel auto payments once they're set up on an account and sometimes even canceling that card number doesn't stop the charges because the autopay is automatically routed to the new card number. How do I know? I used to work at a bank and heard these stories all the time.

One screwed-up code change by the vendor who has a direct line into my account and I'm struggling with bounced check fees all over town with no recourse? No, no thank you.
posted by winna at 5:22 PM on August 14 [1 favorite]


Nthing that you'll have a much better time of this if you use your bank's billpay system to pay them instead of setting up direct debit or whatever with them. You get a lot more control over when and what to pay that way, and they aren't allowed to just suck money out of your account whenever they want. A lot of places that do the direct debit thing even say that they're not liable for their own mistakes if they do ever double-charge you or you forget to cancel the direct debit when you cancel service, etc.
posted by Aleyn at 6:42 PM on August 14


I am one that always uses bill autopay with a credit card -- cell phone, electric, etc. I can understand doing bill pay through your bank if you're paying from your checking account or debit card -- more control with push -- but it's much easier to deal with mistaken credit card payments than bank account payments. For bills that don't allow credit card autopay, I do push.

The only bills that I don't have on full autopay (other than the bills that don't allow credit card autopay) are the credit card statement payments themselves. This forces me to review all charges on my credit card statements. This system works quite well for me. Plus I get cash back.
posted by odin53 at 6:54 PM on August 14


I have all my primary bills automatically paid from checking account or debit card. I've done it for last 8 years and I love it.
posted by nogero at 7:25 PM on August 14


The single thing that's going to have the greatest effect on whether you can have errors corrected quickly and properly is how well your bank or credit union handles any transaction you dispute, and this can vary widely from institution to institution.

Technically, per the rules and regulations, autopay disputes should be easier to resolve in your favor than debit or credit card disputes. Here's why:

With debit or credit card disputes, your bank is limited in how much they can act as your advocate. You have zero liability for unauthorized transactions, but the tricky part is your ability to prove that any given transaction is unauthorized. If the merchant can show that, according to the terms of the authorization agreement you agreed to, the transaction is proper, or if they can convince your bank that it was proper, you're on the hook for the charge. Also, you cannot place a stop payment on a debit or credit card transaction once it's been authorized, nor can your card issuer, at your request, block transactions from any given merchant.

According to the NACHA (National Automated Clearing House Association) rules that govern autopay (ACH) transactions, it should be very easy for you to get quick resolution of a dispute. Your financial institution may return any transaction within 60 days of the settlement date, once you have provided them with a written statement that the transaction was improper or unauthorized. At that point, your bank can immediately re-credit your account, and the issue is now just between you and the merchant. There is no investigation, no appeal or re-presentment by the merchant, and no burden of proof on you. The tricky part here is how closely your bank adheres to the NACHA rules.

Two basic tips:

Read over the merchant's authorization agreement carefully. Look for details regarding error resolution, and how you can cancel the authorization.

Call or visit your bank or credit union and ask about their error resolution processes for possible debit card, credit card, and ACH transaction disputes. Specifically, you want to know if they require your dispute in writing, how quickly you can expect a refund, and under what circumstances a dispute may be denied.
posted by ogooglebar at 9:25 PM on August 14


Most banks have some sort of free bill pay where you set up the bills and it sends checks from your checking account. A lot of places will even display electronic bills inside online banking. It's easier to do it all from one place - you don't have to log into a bunch of sites to make sure that no erros have been made just one. Most will let you schedule payments and/or pay on the due date.
posted by stoneweaver at 10:38 PM on August 14


If you can definitely make sure you won't ever hold a balance on that credit card you're getting, I would highly recommend (if you're in the US, at least) that you run your automatic payments through the CC instead of direct from your bank account. That way you avoid all of the double charge/overdraft problems mentioned above. This is especially true if you don't have a solid buffer in your checking account at all times. I say this because it is much easier to challenge an erroneous charge on a CC than on your debit card. The CC company actually does have an interest in keeping you as a customer, so they're way more helpful/proactive in getting those errors fixed.

Also, if you get a card with decent rewards, you can rack up points or cashback relatively quickly.
posted by Grither at 3:48 AM on August 15 [2 favorites]


I put everything possible on autopay via a credit card, pay it off every month, get cash back quarterly, and have never had a problem. Testimony of one, for what it's worth.
posted by fivesavagepalms at 8:48 AM on August 15 [1 favorite]


You can also establish a second bank account for autopay that requires bank transfers instead of a credit card, and keep that bill-pay account topped up to cover your bills with a bit of a margin to spare. Protects your primary account against serious errors or being compromised by some utility company or payment processor's security breach.

For maximal protection, do it at a different bank so they can't exercise a right of setoff against your primary account in the event your bill-pay account goes negative from an erroneous overcharge. Makes replenishing the bill-pay account a bit more cumbersome, but it's worth it.
posted by snuffleupagus at 11:30 AM on August 15


rekrap: "I'm with shoesietart in that I prefer to set up automatic payments from my checking account using the credit union's online banking rather than through the creditor's or vendor's autopay. To me, the difference is between active management (me PUSHING the money out of my account to the vendor) vs. passive management (the vendor reaching into my account and PULLING the money out). I suspect that 99% of the time the two methods are more or less equal, but I still like the active management better. Maybe I have control issues?"


bartleby: "+1 on setting up automatic bill payment through your bank as the pay-er (push) rather than setting up automatic withdrawals with the pay-ees (pull). You have more control that way.

Fixed recurring payments are easy: 'automatically send my landlord the fixed amount $X, and my mobile phone provider $Y, on the 1st every month, don't even ask me' for the repeating fixed amount bills.

For ones that vary (adepending on your bank's setup), what's happening is that the biller is sending electronic information to the bank, which then alerts you to the bill and sends you an email or text prompt to do something about it - "Credit Card bill is due by x/xx, amount $123.45 - do you wish to [] Pay Entire Balance or [] Pay Specific Amount". You click on one option or the other and that authorizes the bank to send the funds to the pay-ee.

You can also insulate / compartmentalize your money a bit by finding the bank that's got the best free checking account with bill pay included, and funding that account with an automatic transfer from your savings / payroll account that's the total of your maximum bills.....



I would love to have my bank push out the money to the companies each month (Even if the amount varies each month) but unfortunately PNC does not allow this. With PNC, I have to manually input the amount that I want to pay (even if it's the entire amount of the bill), and schedule it for a specific day, every time that I want to pay a bill through them.

I'm still considering going to another bank although the amount of ATMs in my area of other banks is markedly less than my current bank's.

(Thanks for the answers everyone and if you have something else to add, I'd appreciate it.).
posted by fizzix at 10:41 AM on August 21


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