Automatic Bill Pay: How It Works and How To Do It Safely

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No one really likes paying bills, so the idea of automating the process can be very appealing.

Automatic bill pay lets you set up recurring transfers or payments from your bank or credit card to pay your bills — phone, tuition, cable, utilities, mortgage or any other payments you owe on a regular basis — on a timeline you designate.

Here are the main reasons a lot of people take advantage of automatic bill pay:

  • 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.
  • You don’t risk forgetting to make the payments.
  • You sometimes get a discount.

Money expert Clark Howard loves the convenience of automatic payments but has one big warning about them.

In this article, we’ll look at how automatic bill paying works and discuss what Clark does (and does not) want you to do when you set up your payment system.

How Automatic Bill Payments Work

Automatic Bill Payments Through Your Bank

Chase automatic bill pay

You have two options with automatic/recurring payments from your bank account: online bill pay and automated debit transactions.

Online Bill Pay

The first option, online bill pay, is set up through your bank. You give your account information for each creditor to your bank, and the bank automatically pays the bills each month from an account you designate.

You don’t need to give your bank account number to anyone because your bank initiates the transaction. That means your banking information is less at risk.

You choose the amount to pay (based on the amount of your monthly bill) and the date each payment is made. That way, you know when to expect that specific amount to be withdrawn from your account.


If you’re using a checking account to make the payments, set up an alert that occurs before the date the payment is supposed to go through. That way you can be sure you have the funds available and avoid any overdraft charges.

Automated Debit Transactions

With automated debit transactions, you allow a creditor to deduct money from your checking or savings account on a recurring basis. You provide the payee with your bank account and routing numbers so it can execute the transaction. There’s a big potential downside to this. When you give the authorization to draft from your account, it is an open-ended arrangement regardless of your contract with the company.

Also, no matter how much money is in your account, an automated debit will always go through. If you don’t have enough money in your account, you’ll end up owing even more because of overdraft fees and any fees the payee might charge.

Remember when we said Clark had a warning about automatic bill pay? It’s this:

“You never want to give a company the right to draft from your checking account. The reason why is: They can mess up! That money can disappear from your account and it can be very difficult to get it back. What’s a better idea when it comes to automatic payments is set it up where they charge your credit card each month. That preserves your rights, and your money is not at risk.”

Automatic Bill Pay Through Your Credit Card

Many companies now accept credit card payments online, and that’s a much safer way to automate paying your bills.

Credit cards offer far better protection for you as a consumer, which is why you should always use a credit card (instead of a debit card or drafts from a savings account) for any payments that could potentially cause you problems — such as online automatic payments.

You can set up automatic payments through the company to pay each bill before the due date each month.

Then, if you see a suspicious charge, you can dispute it immediately, and the process of getting your money back is usually a lot easier than with debit cards or automatic debit transactions.

Using a credit card could also have the benefit of racking up card rewards or cash back with money you’d be paying toward your bills anyway.


Remember, though, that even when you set up your automatic payments on a credit card, it’s crucial that you review your statement each month for any potential errors or false charges. That way you can report them immediately.

Should You Use Automatic Bill Pay To Get a Discount?

Some companies offer discounts when you pay your bills automatically (often called “auto pay”). For example, T-Mobile offers a $5 discount on its monthly plans (per phone line) when you use auto pay. However, this option may make you connect your debit card or checking account. Is this safe?

Clark has some advice:

“You can open a new account at an online bank and just put in enough money to cover your bill over time. Then it’s safe to give your checking account number. The only money at risk is what you have in that account. The discount you’re getting may almost certainly be worth enough money that it’s worth taking the risk if you open a new bank account. Using your main account is too high of a level of risk.”

Final Thought

To recap, Clark Howard is OK with automatic bill pay as long as you:

  • Set it up as online bill pay through either your bank or credit card.
  • Do NOT use automated debit transactions.
  • Set up alerts in advance of your bill due dates to make sure you have money to cover the bills.
  • Always check your statements carefully for incorrect, duplicate or fraudulent transactions.

The biggest factor in calculating your credit score is your payment history: whether you pay your bills on time. So when it comes to how you pay your monthly bills, you want to figure out a method that works best for you so that your payments stay on track.

Used correctly, automatic bill pay can go a long way to helping you boost your score.

Do you use automatic bill pay to help keep your finances in order and your credit in good shape? Share your strategies in our Community.

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