So you’ve got your budget set, and you know exactly how much you can put towards getting out of debt each month. You just might be ready to automate your repayment activity. Automatic payments are a great way to ensure that your bills get paid on time. They can offer some peace of mind to forgetful consumers. However, there are some risks to setting up automatic payments. Let’s take a look at the pros and cons.
Are You Ready For Automatic Payments?
If your financial situation is stable, automatic payments are something you can consider adding to your financial practices. This means that you have a consistent and reliable income, and you have established an effective budget. Automating your bills is not a recommended strategy for managing credit card debt without meeting these requirements.
If you feel financially ready and are interested in the potential benefits of auto-pay, read over these pros and cons to see if it’s an approach you should consider.
Pros for Auto-Pay:
- Convenience – Setting up auto-pay means you can handle bill payments on your own time. Scheduling multiple payments in one sitting is easier than keeping track of when you need to send in each separate payment based on due date or how much you have in your bank account.
- Paperless – Electronic payments, in general, are great for reducing the need for stamps, envelopes, or and an endless supply of checks.
- Discounts – Some creditors will offer reduced interest rates or other benefits for users enrolled in auto-pay. This is very common for student loan repayment services.
- Avoid Late Fees – If you miss payments from time to time, automatic payments can help ensure that money is received on time.
Cons against Auto-Pay:
- Overdraft Risk – Automating payments means they get sent whether the money is there or not. Overdraft or money transfer fees will result if there isn’t enough in an account to cover a payment.
- Less Control – If payment schedules and amounts are set-up in advance, you don’t fully control when and how much creditors receive. This is especially risky for bills with variable amounts, like utilities.
- False Sense of Security – Automatic payments can lead to a “set it and forget it” mentality. Finances still need to be carefully tracked even when bill pay is automated.
- Tracking Payments – With convenience comes a different set of organizational challenges. When you’re not directly in charge of sending payments, it can be easy to lose track of who receives what and when.
- Payment Info Updates – When billing address, card numbers, or other details change, auto-pay programs must all be updated to ensure no payments are missed. This can lead to unnecessary late fees.
Obviously, the choice to use automatic payments is a tough one. It must be determined by individual circumstances and habits. The best strategy may be a mixed approach where some bills are automatic while others require action each month. When it comes to debt reduction, the best strategy is whichever you’re comfortable with.