Automatic bill pay: Hidden dangers to avoid
You probably get asked by the companies you do business with if you want to set up automatic payments each month —you may even get a discount for doing so [as well as for opting out of paper statements (which you should not do!)] — but while the service is super convenient, it comes with some hidden dangers you need to know about.
If you aren’t familiar with how automatic bill pay actually works, here’s a quick overview: Auto bill pay is when you set up recurring transfers from your bank to pay your bills each month — maybe your phone bill, tuition, cable, utilities, mortgage or any other payments you owe on a regular basis.
A lot of people take advantage of this feature because it’s convenient, you don’t have to remember every bill and due date, you don’t have to visit several websites to get everything paid and you don’t risk forgetting to make the payments.
But while convenient, the service comes with some hidden dangers that can cost you — so it’s important to know the safe, and unsafe, way to set it up!
How it works and your safest option
There are two ways to set up reccurring payments:
- You can set it up through your bank so that your bank initiates the payment each month,
- or, you can allow the company access to your account to withdraw the money each month to cover your bill.
The problem with the latter option is when you give a company authorization to regularly draft from an account, it is an open-ended arrangement, regardless of your contract with the company. That means the company could continue pulling money from your account even after your contract for the service has ended. And they have all the information they need to do so!
Bottom line: automatic debit transactions (from a check or savings account), especially recurring ones, can easily cause unexpected withdrawals to be made from your account, which can potentially cause some major financial damage.
That’s why setting up recurring payments through your bank — with a credit card — is a better option.
You can even take it a step further by designating one credit card for all of your recurring payments, that way you can keep track of all your other spending separately.