Should You Set Up Automatic Payments?

Today it is easier than ever before to set up automatic payments. I suspect our grandparents would be jealous to know all the many options we have to simplify the process of paying our bills. For those who struggle with organizing their finances, automation is a welcomed bit of technology.

Still, just because automatic payments are easy doesn’t mean they are always the best thing to do. There are both advantages and disadvantages.

Disadvantages of Automatic Payments

1. You Might Set it and Forget it

While the ability to set it and forget it might also be one of the advantages of automatic payments, it is also one of the biggest disadvantages. There are some elements of our personal finances we don’t want to forget.

Take your credit card bill, as an example. Each month you should want to be shocked by how much money you spent. That shock will cause you to go back and review your bill. This manual credit card bill review is especially important for people who don’t keep a budget. You must be in touch with where your money is going.

Furthermore, reviewing and then authorizing your payments helps you to be sure there aren’t any inactive subscriptions on your account.

While it is possible to have automatic payments set up and review all your bills, usually people just don’t worry about doing anything with the bill because the automatic payment is set up.

2. Potential Cost of Unusual Activity

Imagine that you have an automatic payment set up on your auto insurance, a credit card, and a utility bill.

However, one month you make an extremely large purchase and forget to transfer funds to your bank account. Before you know it, you’re now facing a bank overdraft and insufficient funds possibly on one bill or on multiple bills.

3. Scheduling Conflicts

Similar to the potential cost of unusual activity, at times several of your payments might post close to each other, and you forget to allocate enough funds to your account.

The obvious remedy, and the one I use, for these disadvantages is that I keep a larger than normal amount of money in my checking account to be sure I won’t overdraft my account even if something unusual happens.

Advantages of Automatic Payments

1. Set it and Forget it

Yes, this was the first disadvantage too. When it comes to things like investing, it is better if you don’t even miss the money. When you set up an automatic withdrawal schedule, you’re less likely to be cognizant of how much money you are investing for retirement. This detachment is a very valuable tool to help you grow your nest egg.

2. Save Time

Once you set up an automatic payment, you don’t need to invest any more time to be sure that your financial tasks are complete. Everything is now automated so you can move on to other things.

3. Avoid Possible Late Fees and Stress

If you’ve ever forgotten to pay a bill then you know how frustrated you feel. However, you can avoid the potential late fees and the stress by setting up an automatic payment plan.

How to Decide What to Automate

As a general rule, I’d suggest automating anything that helps your finances – like investing. If it is costing you money, you might want to consider an alternative to automation. Personally, I prefer to set up automatic payments to a credit card instead of a bank account because once all the bills for the month come together, I have 15 days (or whatever I set) to be sure my bank account has enough to cover the bill.

Obviously, this is very poor advice for those with credit card debt problems. When you set up automatic bank payments, those funds are automatically removed from your account, so that could potentially catch you off guard.

Do you automate your payments? What do you think about automatic payments? Leave a comment!

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  1. Tim @ Faith and Finance

    I think automatic payments can really be helpful. We automate some bills to a credit card and I manually pay off the card (2-3 times each month to make sure it’s completely paid). We also set up student loan payments to automatically draft from a separate savings account, which makes it easy to control and watch.

  2. Dan W.

    There’s no doubt automation can save a ton of time. But that doesn’t mean you’re left without any responsibility. A lot of people make a mistake setting up automated payments and leaving it at that. You still have to monitor activities, you still have to do your part.

  3. Mary O'Brien

    I have one automated payment – the insurance bill. Personally I would rather pay cash for all purchases except those I can pay on the Internet because the charges are variable.

  4. 20 and Engaged

    I know when automatic payments first got popular a lot of people had issues with it. They’d usually always have billing disputes (at least my parents did) so I’m pretty wary about it unless it’s a set cost every month.

  5. Donna

    I pay on line mostly through my bank. I have automated my car/life insurance as well as some charities and newspaper bills. Great post.

  6. Janice

    I have my mortgage and car payments automated. These are fixed every month and they are things I don’t want any question on whether they were paid or not. Other things are paid manually. My husband would rather everything be paid manually in order to maintain the utmost control of our financial situation. I’m glad he honored my need for security with the paying of the mortgage and car.

  7. Debbie

    I pay my mortgage and most used credit card (paid in full every month) electronically, but the payments are set up manually each month.

  8. Daddy Paul

    I am not to wild about automatic payments. I do pay online just have a list of what needs to be paid and when.Anyone who has ever gotten an “estimated” bill from the power company knows why you don’t automate those bills.

  9. Linda

    I set up payments (automated) for mortgage and car. BUT…I set it up EACH month.

    Beginning of the month I set up the automated payment for each one.

  10. Gail G

    Some companies make it very difficult to cancel a service, especially with automatic payments so I only set up an automatic payment for services that require it. Those are rare for me but do occur, such as online subscriptions. I give much consideration as to my desire for these services before enrolling.

  11. Robert Jacobs

    I love automatic payments. They have made my financial life easy when comes to keeping track and recording transactions. However, you need to review them several times a year.

  12. Joe

    I have everything charged to my card for the perks. Then I have the bank pay my balance in full each month. I carefully check my charge card bill when it comes.

    I pay medical by check for a deduction and to stay away from their ERRORS. However, at tax time, I can only go back 12 months to get copies of my checks. So, the middle of the year I print up my checks for medical and do the rest in April….

  13. Joesph Lalonde

    All of my payments are automated. The main benefit is the set it and forget it, like you mentioned.

    One way to avoid the unauthorized or wacky charges is to briefly review your bills when you receive the email reminder that a bill is due. There hasn’t been a bill company that hasn’t sent out the reminder before my payments are deducted. It’s a great way to keep on top of things.

  14. Cate

    Just last night I came to the realization that having all my payments “automated” have made me complacent, especially since I’ve got myself set up for paperless statements for pretty much everything, and kept me vague on what I’m actually being charged for (I’m specifically thinking about cell phone & cable). It’s been so easy to say “Oh, I owe $XX” and enter it into my payment register without the awareness. I’m making a commitment to myself to review each statement that comes in from companies – I review my credit card and bank charges pretty much daily because I have a spouse who will not enter transactions and often loses receipts.

  15. James Corbin

    I totally agree with automatic payments into savings and investments.

    I prefer not to automate bills for several reasons. I want to know if a fee or rate has gone up. It is also good to actual make the payment every month so you have a better idea where your money is going, even if you don’t have a formal budget. I also keep getting the paper bills because you never know when your computer is going to belly up or even your email. One weekend my ISP somehow went down and lost any and all emails that came in during that time. If one had been a bill, I might have missed it.