Will Automatic Bill Pay Ruin Your Finances?

NEW YORK (MainStreet)—For many of us, paying bills automatically is a decision we make, because it is easier than managing our money manually. But is it good for your bottom line? Below we are going to look at which people automatic bill pay is right for, and which folks might be better off taking the hard road to bill paying.

We will talk with a few experts and look at who might want to use automatic bill paying, who will want to steer clear and why automated bill paying is not free pass to stop paying attention to your finances completely.

Who Should Auto-Pay?

Choosing to auto-pay your bills has a lot to do with who you are and how your money comes to you. If you are a salary worker who can predict to the day how much money is going into your account then automatic bill pay may be good for you.

Of course, that is not the case for every worker. Many of us live on variable incomes and have to weigh the benefits and detriments of the technological convenience.

"People choose automatic bill pay as a way to spend less time when it comes to paying the bills," said Deacon Hayes, the founder of Well Kept Wallet, LLC. "Unfortunately for some, it can be a costly mistake. For instance, if someone is commission only, their income is variable. This means that they cannot count on the money being in their bank account to pay their bills automatically since their income fluctuates every month."

In addition, people who work in jobs where a significant portion of the earnings come from tips can have challenges when it comes to automatic bill pay, Hayes says. People like servers, bartenders, pizza delivery drivers have fluctuating incomes and can find it difficult to predict how much money they will have in the account on any given day.

The same may be true if your income is tight and you rely on overtime to get your bills paid, or if you have multiple jobs that pay of different schedules. In these situations you may want to think twice before you put your bills on automatic payment. Basically, uncertainty is the enemy here.

Which Bills Are Right to Auto-Pay?

So, if you are choosing to go the automatic bill pay route, should you do all of your bills? According to Gary Hendershot, the CEO of Padgett Payroll Services, you may want to be a little bit selective about what bills your let get paid without your say-so.

"Once you set a bill to auto-pay, you are less likely to keep track of your account, which shouldn't be the case since you should always have a full grasp of your finances," he said. "Many monthly payments can vary in amount from month to month, and these should not be attached to auto as you will once again want to track varying amounts."

In fact the only true expenses that you should have automatically paid would be fixed bills like gym dues, cable/internet, rent/mortgage, car payments and insurance. Or you may have money transferred from one account to another like checking to savings. Since these will never change, you will be able to plan for them accordingly and have the funds available.

It all comes to to one simple boiler-plate consideration, Hendershot says: "The overdraft fee isn't worth the 'no-hassle' approach to bill pay so all other expenses should be reviewed."

How Do You Keep it All Under Control?

When it comes to auto-pay, there are indeed some precautions you should take, agrees Anisha Sekar, the vice president of credit and debit at NerdWallet.

"The danger with automatic bill payments is an overdraft," Sekar said. "If you've linked your bills to a checking account and you opt in to overdrafts, you might end up paying steep fees."

Sekar does have recommendations for mitigating the danger:

  • Setting low-balance alerts, either from your bank or from a service like Mint.com
  • Linking your bill to a prepaid debit card that won't allow you to overdraw
  • Structuring your automatic bill payments so that they go out just after your paycheck is deposited into your account

There you have it. Now, the odds are good that you have a good handle on whether or not automatic bill paying is right for you and your fiscal needs. You also know what you need to do to maintain it if you are going to go this route. So either go ahead and set up your payments, or go ahead and set up next month's planner with all of the bills that you are going to be paying by hand.

--Written by Katie Gatto for MainStreet

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