Pros and Cons of Automatic Bill Payment

It can be easy to forget important things: What time is that meeting? Where’s my phone? Did I pay my credit card bill yet?

While all of those examples are significant, forgetting to pay your bills can be the one with considerable financial ramifications.

According to a recent Census Bureau Household Pulse survey, 36% Americans say they have trouble paying all of their bills on time. Granted, some of that may be due to living paycheck to paycheck, but organization is likely also part of the problem.

Signing up for automatic bill payment can be one path to getting bills paid by the due date, avoiding late fees, and protecting your credit. Here, you’ll learn what automatic bill payment is, how it works, how to set it up, plus the pros and cons of this option.

What Is Automatic Bill Payment?

So exactly what is automatic bill payment exactly? Autopaying a bill transfers money to the person you owe on the due date from a connected bank account — as long as there is enough money available to cover the bill, of course. This can usually be facilitated by the company you have an account with or by your bank.

After the initial set up, automatic bill payment can help pay recurring bills with minimum effort. Simply put, automatic bill payments, once they are in place, allow someone to transfer money from their own account to a creditor, like for a credit card company or service provider, like for a utility bill, without needing to actually initiate a payment every time. In other words, payments can happen automatically, without any effort on your part, such as writing and mailing a check.

💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, and transfers from one bank account with SoFi.

Advantages of Automatic Bill Payment

Automatic bill payment has a number of benefits to consider.

It’s Convenient

Automatic bill payment is an easy way to cross off one more “to do” from the list. First, it’s simply more convenient for a lot of people. Instead of remembering specific bill due dates and having to log in to different websites or sending paper checks through the mail, automating personal finances simplifies the experience.

Once payments are set up, some people can adopt a “set it and forget it” mentality, meaning they don’t have to worry about due dates. While it’s still important to be aware of when money will be leaving the bank, sometimes the reduced stress of not worrying about due dates every month is worth it.

Recommended: When All Your Money Goes to Bills

Automatic Bill Pay Is Secure

Automatic bill payment is also secure. According to Experian, online payments can be safer than traditional paper checks and statements because they are digitized and encrypted. Avoiding those physical bills and mailing in checks can help reduce exposure to fraud.

Plus, a digital transaction can be much easier to track in real-time and make sure the correct amount for each bill went to the right place, rather than waiting weeks to see if the company cashes a check.

Putting bills on autopay can help avoid the worry about whether a bill got paid, of course, but it could even give finances an eco-friendly boost and reduce the number of paper bills mailed out.

Impacting Your Credit Score

Here’s another benefit of automatic bill payment: Not only can it help you avoid late fees in the short term, it could also help protect your credit score. In fact, payment history affects 35% of someone’s FICO® credit score. (FICO reports that negative marks on credit history can fade over time with consistent on-time payments.) Autopay can help you avoid those late payments.

Saving Money with Automatic Bill Pay

One big advantage of automatic bill payments: Doing so can help you avoid late fees that could be incurred by failing to pay on time or missing a payment. Those fees can add up quickly.

Plus, some creditors, such as federal student loan servicers, offer a discount for setting up automatic payments. In some cases, this is an interest rate reduction, which could help reduce the total amount of debt paid overtime.

Disadvantages of Automatic Bill Payment

Now that you know the benefits of automatic bill payments, consider the potential downsides.

Overdraft Fees

One major downside to putting bills on autopay is the fact that, well, the payments will be automatic. If there is not enough money in the connected bank account to cover the cost of the bill, there is a risk of overdraft and NSF fees from your financial institution.

If there is not enough money to cover the bill, there is a risk of overdraft fees.

Some payment amounts change month to month, such as utility bills. Without checking ahead of time how much the bill will be, it’s possible for the utility company to simply withdraw what is owed, causing the account to be overdrawn. Overdraft fees depend on the bank, but the average is around $35, according to the Federal Deposit Insurance Corporation (FDIC).

Forgetting about automatic withdrawals from financial accounts could lead to overspending, pushing account balances lower than the amount needed to cover those pre-set bill payments.

One possible solution to such cash flow issues: Spread out bill payment dates throughout the month, rather than having them all grouped together. Bills might be scheduled for the beginning or the end of the month, but it’s simple to change the date of automatic payments, with enough notice. You can contact the payee about moving a bill due date and then double-check when the change will go into effect to avoid any late payments.

The Consumer Financial Protection Bureau offers a helpful worksheet to help visualize which weeks every month are the most hard-hit.

💡 Quick Tip: Fees can be a real drag when you’re trying to save money. SoFi’s online checking account has no account fees, including overdraft coverage up to $50.

Potential Late Fees

In addition to your financial institution charging you for an overdraft, if an automatic payment doesn’t go through, the payee (the company you were trying to send funds to) may also assess a late fee.

When these fees add up, especially on an interest-charging account, you can wind up having your debt increase.

Forgotten Subscriptions Can Be Costly

Another disadvantage of automatic bill pay is that it reduces your control over what money is going out at certain times. You might wind up with more money flowing out of your account than you realize.

For instance, you might sign up for a one-week free trial of a streaming service with every intention of canceling it after you binge-watch a series. But then you forget and autopay kicks in, which could lead to overdrafting your account over time.

Another scenario: You might move from one home to another and be so busy that you forget to cancel an automatic payment related to your former home or neighborhood. Perhaps you had signed up for one of those “all you can drink” monthly coffee deals at a cafe around the corner from your old place. Review your monthly statements to be sure you catch unwanted charges.

Vendors May Overcharge or Make Mistakes

Another downside of automatic bill payments is that a payee could overcharge you or charge you twice, and you might not be aware of the problem until you review your account or overdraft it. For this reason, it’s wise to check your bank account regularly and scan automatic bill payment transactions to be sure everything looks in good shape.

Whatever the case, whether paying bills manually or using automatic withdrawals, it’s important to still be intentional about making and keeping a budget.

How to Set Up Automatic Bill Payment

Here are the step-by-steps to setting up automatic bill payment for, say, a credit card by selecting the service offered by your card provider.

1.   Log into your credit card account online or in the app.

2.   Select the “recurring payment” or “autopay” option.

3.   Choose how much you want to pay. You may be given such options as minimum payment, a specific amount that you designate, or the total amount of your bill.

4.   You’ll then connect your credit card account to your bank account for payment.

5.   This typically involves adding your account number and routing number.
You will need to approve the autopay set-up, often by agreeing to terms and conditions.

Another option is to set up automatic bill pay directly with a financial institution. One advantage of this is that you don’t need to share your account information with the payee, which can make some people feel more secure about their financial accounts.

1.   Log into your bank account online or in its app.

2.   Find the link for automatic recurring payments; it is often labeled “Bill pay,” “Pay bills,” or something similar.

3.   Then add a payee and follow the prompts to set up a recurring or future payment. Have a recent bill on hand, since the bank will need information like the payee’s bank account numbers, addresses, due dates, and other important information.

Example of Automatic Bill Payment

Here’s an example of how automatic bill payment might work. Say you sign up for a gym membership on a monthly basis at $65 per month. However, the gym will lower that to $60 a month if you sign up for autopay on their site and save them the trouble of billing you.

If you take advantage of this offer, you would likely go to their website or app, log in, and head to your account details, and find the payment or billing section. There, you would opt into autopay and share your banking details or your credit card details (paying by debit card usually isn’t recommended; you have less protection if there’s a problem). You may be informed of what date funds will be deducted or you might be able to select a date.

You should be all set to have your gym membership payments automatically paid every month. It’s a good idea to verify this when you check your bank account. And, of course, if you decide to end your membership, be sure to cancel the automatic payment.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

The Takeaway

Automatic bill payments can be a major convenience as you manage your personal finances. However, like most things in life, there are pros and cons. You can gain convenience and the ability to avoid late charges, but you also have less control over your money. By educating yourself about how this process works, you can decide whether it’s right for you, and, if so, for which payments.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Do automatic payments hurt your credit?

Automatic payments, like manual payments, could hurt your credit if you pay your bills late or experience insufficient funds.

What is the difference between bill pay and ACH?

Bill pay usually refers to sending funds electronically. One common way that funds may be transferred (but not the only way) is via the Automated Clearing House network, which is known as ACH.

What is the safest way to set up automatic payments?

The safest way to set up automatic payments is to do so through your bank or credit card; it’s not recommended that you use your debit card as you’ll have less protection if there’s a problem. Also, check your balance and statements carefully to make sure you have enough money in the bank to cover your autopayments and also scan for any incorrect or fraudulent transactions.

Should I use autopay for utilities?

Whether you should use autopay for utilities depends on your situation and financial habits. If you know you’ll be able to cover the amount every month, it could be a real convenience. However, utility costs can sometimes fluctuate greatly, like the cost of heating a home in winter, which might cause pricing spikes and lead to your overdrafting. You want to be sure you can always afford to cover bills that are on automatic bill payment.

---

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOBK0223044