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

Automatic Bill Pay: How It Works and How to Do It Safely
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No one really likes paying bills — which is one reason why automatic bill payments can be very appealing.

Automatic bill pay is when 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 — each month.

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

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 pay works and discuss what Clark does — and does not — want you to do when you set them up.

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

The first option, online bill pay, is set up through your bank. You give your bank the information for the account you have with the payee (your cell phone carrier, for example) and the bank automatically pays them what is due each month from your checking or savings account.

You don’t need to give your routing number and account number to anyone because your bank initiates the transaction. That means your information is never provided to any third party and therefore isn’t at risk.


You choose the amount to pay (based on the amount of your monthly bill) and the date the 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 That way, you know when to expect that specific amount to be withdrawn from your account.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 for before the date the payment is supposed to go through so you can be sure you have the funds available and avoid any overdraft charges.

Automated Debit Transactions

With automated debit transactions, you allow a payee to deduct money from your checking or savings account each month by providing your routing and account numbers. The problem is, when you give authorization to regularly draft from an account, it is an open-ended arrangement, regardless of your contract with the company.

Another issue with automatic payments is that regardless of how much money is in your account, that charge is going through. If you don’t have the funds in there, you’ll end up owing even more due to expensive overdraft fees and any other fees the payee may charge.

Remember when we said Clark Howard 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

Chase bill pay

That brings us to our final automatic bill pay method. Many companies now accept credit card payments online — a much safer alternative for automating your bills.

Credit cards offer far better protections 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 — like online transactions.

You can set up automatic payments through your credit card 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 a lot easier than when you’re hit with false charges on a debit card or to your checking account.

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.

RELATED: Best rewards credit cards: Team Clark’s picks

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

Final Thought

To recap, Clark Howard is a big fan of automatic bill pay as long as you:

  • Set it up as online bill pay through either your bank or credit card
  • DON’T 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 the comments below!

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