Editorial Policy

Automatic Payments: Time Saver or Financial Snooze Button?

Kristin McGrath

January 25, 2013

This weekend, a friend looked at me like I was crazy when she saw my to-do list taped on the wall near my desk.

“Pay electric bill?” she asked incredulously, reading off the first item. “How do you seriously not have auto-pay set up for that? Are you my mom? Do you write out a check and lick a stamp and mail it?”

For the record, I pay the bill online (not via snail mail) — but I do pay it manually, every month, along with several other bills. I do have automatic payments set up for some bills, but I prefer to pay as many as I can the “hard” way.

The benefits of automatic payments seem obvious: They take a minute to set up and save you hours over the course of a year. Because you can’t forget a bill, you can avoid late fees.

Yet automatic payments can have disadvantages, too, as personal finance bloggers from Christian Personal Finance, Moolanomy and WiseBread have all pointed out. Because you know your bills are getting paid, it makes it easier to ignore your billing statements and miss errors. If you don’t keep an eye on the balance of the account that these bills get paid from, you might end up with an overdrawn account. Plus, as I learned last year, setting automatic payments to your debit card can blow up in your face if that debit card gets compromised by a thief.

I’ve now reached what I find to be a healthy compromise with automatic payments that allows me to use them without relying on them for everything. Here’s a rundown of my current system:

Bills I pay automatically:

  • Car insurance: I pay my premium twice per year. That’s seldom enough for me to forget about it — or at least forget the password that would allow me to log into Geico and pay it manually. So this bill gets paid automatically out of my checking account.
  • Storage unit: This bill is the same every month, so there’s less room for billing errors. When I look over my checking account online, I make sure it’s there and that it’s the correct amount.
  • Cellphone: I recently re-joined my family’s family plan to save money, but before that, I let auto-pay take care of my cellphone bill. I’d glance at the amount and investigate the matter further if it was higher than it should have been.

Bills I pay manually:

  • Electric bill: I canceled automatic payments after my account got compromised last year and never reinstated them once I realized how beneficial it was to take a close look at the billing statements. It’s become a game to try to use less electricity every month; a game that is saving me money. Sure, I could pay the bill automatically and still look at the statement. But I know my financial habits too well to believe that I would actually look at it if I didn’t have to.
  • Rent: At my apartment complex, a bunch of additional charges get added to my rent, including pest control, trash disposal and water, so the bill varies each month. I have spotted too many billing errors to ever trust this bill to auto-pay.
  • Credit card: I use my credit card for online purchases, travel purchases and big-ticket items. Paying this bill manually every month forces me to look my credit card statement in the eye and acknowledge how much some of my more expensive habits are costing me. Plus, I want to be able to spot fraudulent charges as soon as possible.

Are you a fan of automatic payments? Which bills do you use them for? Are there some bills you’ll never use them for?

With keeping your finances running smoothly in mind, here are some of my favorite personal finance blog posts of the week:

Kim from Eyes on the Dollar recounts the not-so-glamorous jobs she’s held and what she learned from them.

This is Common Cents calculates the real cost of cheap food.

Frugal Habits presents some ways to save money on gas.

Master the Art of Saving explains how making do with a simpler phone can save you money.

Debt Roundup advises readers to hold off on vacations until they’ve paid off all debt.

Wealth Pilgrim suggests some escape routes from five common debt traps.