Remembering all the bills you have to pay, when they’re due, and how much they are can cause a certain level of stress and anxiety in your life. You may feel scattered trying to keep track of your bills - water, electric, cell phone, car insurance, rent, health insurance. For many, on top of those household bills, there are student loan payments or credit card bills to pay.

Luckily, there are tools to take this stress out of paying bills. Automatic payments, or autopay, is a fantastic solution that lets you set up regular monthly payments from your bank account to go to pay your bills. In other words, they are automatically paid. You don’t have to worry about juggling 10 due dates in your head and remembering each one.

Let’s talk about autopay, how it works, and its pros and cons.

How autopay works

Automatic payments are payments that you set up on a specific day and time of each month to regularly transfer money from your bank to a certain service provider. This could be a mortgage payment, cell phone payment, or insurance payment.

Autopay eliminates the need to sit down each month with your bills and write checks or transfer money to each service. It also makes recurring payments, so next month they’re automatic too, and each month after that until you cancel the subscription, service, or stop using that provider.

Most streaming or subscription services such as Netflix or Amazon Prime use autopay as a default. You enter your credit or debit card information into your account, and they charge you each month for using their services. Most other services also have other payment options available such as paying by check or over the phone.

There are two ways you can set up autopay: 

  1. Go directly to the vendor and give them your account information to set up automatic payments. 

  2. Set up automatic payments to the vendor through your bank.

Some prefer to go directly to their vendors to set up automatic payments. For instance, if you want to put your mortgage payment on autopay, you can go through your mortgage lender. If you have student loan debt, you can go to your lender’s website to set up a recurring payment from your bank account from there. 

Most people, however, prefer to go through their banks to set up these payments. Most banks have electronic payment information for the services you use and can automatically transfer funds from your account to your various bills. Your bank is also able to print off checks and send them to your vendors each month.

Pros of autopay 

Now that you have a good idea of what autopay is and how it works, here are some of the benefits of using it.

Convenience 

Autopay is convenient. It saves time and effort on your part when it comes to paying your bills. It saves you the hassle of sitting down with all your bills and having to write and address checks to each or transfer funds from your bank to them one at a time.

It’s also super easy to do and easy to cancel!

Autopay discounts 

As you look through your bills, it can be easy to feel overwhelmed at how much you owe. On top of rent and food bills, you have car insurance payments, health insurance, cell phone bills, and more. Luckily, one of the benefits of autopay is that many companies offer discounts to set it up. Ask your provider about any discounts for setting up autopay.

Avoid late payments 

Another benefit of autopay is that it helps you avoid late payments. If you’ve missed a payment before, you know it comes with more than just a warning. Late fees can apply, and your rates themselves could go up for each late payment.

Setting your payments on autopay is a great way to avoid late fees altogether.

Improve your credit score 

Your FICO credit score is based on a few factors, but one of them is how consistent your payments are. Payment history itself is the most important factor determining your credit score, so missing a payment or paying late can make a huge dent.

However, when you’re consistent with your payments, these dents eventually fade, and your credit score can improve.

Reduce stress

Nobody wants to feel stressed about payment or about making payments on time. And, if your life is fast-paced, this should be the least of your worries. Setting your bills on an automatic payment schedule is a great way to relieve some bill-related stress you may have.

You won’t have to worry about remembering which bills to pay by the 15th of the month and which to pay on the first of the month. They’ll be automatic, so you can worry about what matters.

Cons of autopay 

With the many benefits of autopay, there are some cons as well. However, if you are aware of these downsides, you can prevent them and still reap the benefits of autopay.

Potential to overdraft 

If you use autopay and aren’t in the habit of keeping a close eye on your bank accounts and payments (even when they’re automatic), it can lead to overdrafts and associated fees.

An overdraft occurs when you make a transaction or purchase but don’t have sufficient funds in your bank account to cover it. Often, an overdraft happens after a direct deposit. You might assume direct deposits are automatically processed, but they’re not always immediately available, and this can lead to an accidental overdraft from your account.

With autopay, it can be easy to forget that you have an automatic payment coming up. You may be looking forward to a purchase or expense that you don’t usually have, but forget about your autopay bills, and this could cause you to overdraft your account.

Mistakes made by your provider 

While rare, there is a risk that your service provider, merchant, or vendor could make a mistake when processing your autopay. Your cell phone provider could process your payment twice, or your car insurance could add a zero to your monthly bill.

While these mistakes are able to be fixed, they can sometimes be a hassle. It takes time and effort to sort through mistakes like this and refund the money to your account.

Lose track of your budget 

Another unfortunate downside of autopay is that it can cause you to lose track of your budget and financial goals. When money is taken out of your bank account automatically, you may check it less and lose track of where you’re spending it. This can cause you to go off-budget and lose track of your financial goals.

This may seem harmless, but there are many benefits to budgeting. It can help you stay on track with your rent, utilities, car, and loan payments, but a budget also helps you save for important life milestones like your wedding, future family, dream house, and retirement. If you lose track of your budget, you stop telling your money where to go. When you stop telling your money where to go, you can lose track of your financial goals.

If you’ve never had a budget but want to set your payments on autopay, now is the time to make one! Using the 50/30/20 method is a great place to start! Simply divide your income into three categories. Use 50% of your income to pay for fixed expenses such as rent, food, and utilities. 30% then goes to pay for your variable expenses like entertainment, clothes, and gifts. And the remaining 20% of your income goes directly into a savings account.

For more tips and tricks to help you create a household budget, use a budget planning calculator to allocate your hard-earned money.

Tips for keeping track of automatic payments 

There are many pros of autopay, from its worry-free ease to the discounts and rewards of consistently paying your bills. To avoid the downsides of autopay and reap all the benefits, here are some tips!

  • Make a budget. If you haven’t already made a budget for yourself and your household, now’s the best time to start! This lets you control your money and tell it where to go.

  • Keep track of your payments. While autopay is worry-free, it isn’t something you can set up and forget about. It’s important to keep track of your payments, bank account, and funds throughout the month to ensure your payments are correct and avoid overdrafting your bank account. Keeping track of your payments can be easy! Most banks and services offer online platforms for you to view your payments and payment history.

  • Get alerts. Most autopay services or banks offer notifications when a payment goes out and when your bank account gets low or overdrafts. This can help you be aware of your funds and avoid overdrafting.

Is autopay right for you?

Autopay is a great payment option, but it’s not right for everyone. Here are some guidelines for figuring out if autopay is right for you.

If you have regular and consistent income, an emergency fund, and backup money in your accounts to protect from overdraft, then autopay might be a great option! 

If you are self-employed and have inconsistent income, are unemployed, lose track of your budget easily, or don’t keep backup money in your accounts to protect from overdraft, then autopay may cause more harm than good.

The takeaway 

Paying for life can be expensive, and managing your money can be stressful, but with autopay, you can experience benefits, discounts, and other rewards that can make your life easier and help you manage your money better. If autopay is right for you, contact your bank, service provider, or vendor to explore your options and set up payments that can make your budgeting hassle-free. autopay may save you money in the long run.