The Perks and Drawbacks of Autopay

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Chances are, you have a bunch of bills to pay each month.  I pay my credit card, power bill, phone/internet bill, two student loans, water/trash bill, and my rent each month.  All but one of those offers “Autopay,” a direct withdrawal from my bank account each month to automatically pay my bill.  Is that a good deal?

Like everything in finance and most things in life, there is no straight answer to that question.  It really depends on the circumstances.  However, there are clear benefits and drawbacks that can help you get to a clear answer for your situation.

Perks

The most obvious perk to automated payments is the “automated” part.  If your bills are paid automatically, you never have to think about them.  The company is authorized to just take the money when it is due.  If you struggle with late fees or missed payments, this could be a good tactic to make sure you are covered.

The best part of autopay is the option to get a discount.  Both of my student loan providers give a .25% interest rate deduction for the duration I use autopay.  Over the life of a loan, that can easily add up to hundreds of dollars.  If you can get a discount, take it.

Finally, some billers offer the “perk” of not having to pay a processing fee if you use their preferred payment method.  I have to pay a fee on my power bill if I use any method other than autopay or a bank’s bill pay system.  I am not going to pay $5 per month to pay my bill, so I’ll take the bank account route.

Drawbacks

If you do not watch your bank accounts and you are hit with a bill payment you forgot about, you might overdraft.  Depending on your bank setup, the payment could be rejected or you could be hit with a big overdraft fee.  A late fee from the biller or a $20+ overdraft fee is not worth the convenience of autopay.

If you are on autopay, chances are you are not looking at your monthly account statement.  This can be a big mistake.  I have caught many errors on bills over the years, and I always get them fixed.  If you do not read the bill, you will miss the error.  If you miss the error, you are paying for it either way.

Credit card rewards are a perk for paying with a credit card.  Most autopay systems only let you pay from a bank account, not a card.  If you are giving up a cash back reward or valuable points or miles to sign up for autopay from a bank account, you should think twice about which reward is better.

The Bottom Line

There is no right answer.  I pay my power bill and phone bill with autopay.  I pay my cable bill using autopay to my credit card.  I pay my student loans through autopay for the interest rate discount.  Everything else goes to my credit card if possible, or my bank bill pay if not.  You have to look at each bill individually and know that there is no one size fits all option.  Be smart and make the best decision for each bill.  That will get you the best rewards and save you from paying unnecessary fees.

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