In today's busy world, finding time to pay the bills can be a challenge. Not only is it boring, stressful and time consuming, but watching the dollars fly from your hands to the hands of your creditors is never any fun. Factor into that the late fees that can easily accumulate and the interest rates that can drive your payments through the roof, and you've got a recipe for a credit problem in the making.
Putting bill payments on autopilot is an attractive method of dealing with the necessary evil of paying the bills. It's easy, effortless and (most importantly) free. There are three basic ways to automate your bill payments:
1. Through Your Bank
By providing the bank with information about all of the bills that you need to pay each month and authorizing your bank to pay them on your behalf, you can easily remove the stress from monthly bill payments. Under this option, the bank automatically takes the money out of your account each month and sends it to your creditors.
In a variation of this, you can use your bank's online bill payment system. In this scenario, you set up a list of creditors that you can transfer payments to at the push of a button, much the same way as you would move money between your checking and savings accounts each month. It's not exactly automatic, but it is relatively convenient and cuts down on the time and expense of using stamps and envelopes. It also provides control over the date that bills are paid, and the amount that is paid on them.
2. Authorizing Creditors
Providing creditors with banking information is another way to automate bill payments. By giving creditors access to your bank accounts, you can authorize payments and withdrawals to allocate the necessary funds to pay your bills.
3. Credit Card Company
You can provide your credit card company with information about all of the bills that you need to pay each month, and authorize the company to pay them on your behalf. Many debit cards also offer this service. (For related reading, see Credit, Debit And Charge: Sizing Up The Cards In Your Wallet.)
The Advantages of Automation
Convenience is the best reason to use automated bill payment. Bills get paid automatically while you spend your time doing something you enjoy. You'll never miss a payment and never pay a late fee again. You'll also save money on postage, envelopes, and checks.
Do It Right
Letting an automatic payment plan do the heavy lifting for you doesn't mean that you can completely forget about the bills. You still need to monitor the transactions that are taking place for errors. Because automation isn't infallible, double payments and incorrect amounts could be charged. The sooner you notice an error, the sooner you can correct the situation. At least once a month, you'll want to reconcile your bills with your bank statement or credit card statement.
Ideally, you will be able to set it up so that all of your bills are automatically paid by your credit card. This lets you earn reward points for recurring purchases and avoids the possibility of an overdraft on your bank account. Just make sure your monthly bills aren't anywhere near the maximum on your credit card limit - and that you pay the bill in full when you get your statement. Otherwise, interest charges will erase any benefit to this strategy. (Learn more credit card management tips by reading Six Major Credit Card Mistakes.)
Unfortunately, some utility companies and other vendors do not offer credit card automated bill payments, so you may need to use more than one of the automated bill payment options to cover all of your monthly expenses.
If you have any doubts about your ability to maintain a sufficient balance on your credit card to meet your daily expenses and recurring obligations, use one credit card for the recurring items and another for basic daily expenses and emergency charges. In any event, you should have a personal budget set up to make sure you have a handle on your expenses. Knowing how much you have coming in and going out each month will help you avoid overextending yourself. (For more on budgeting, see the special feature Budgeting 101.)
While you can delegate bill payment, you still need to monitor the situation. Errors can be time-consuming, frustrating administrative hassle to find and fix.
Automated bill payment can also increase your expenses. If you don't pay your credit card bill in full each month, interest charges will accumulate - that partially defeats the purpose of setting up automated bill payments. The goal is to increase convenience and decrease expenses, not to spend more in unnecessary charges.
More Gain, Less Pain
On the bright side, unless you change banks or credit cards on a frequent basis, or change primary residences often, automated bill payment is a truly beneficial service. You save money, time and supplies while minimizing aggravation and maximizing convenience. Best of all, most (if not all) of these services are free to initiate, easy to set up and effortless to monitor. (For more ways to keep everyone paid on time, see the Procrastinator's Guide To Bill Payment.)