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You have to be careful when you are using automatic payments for your debt and bills. If you do not know how to use it properly, you might end up making mistakes and that can cost you money in the long run. Most of the time, people opt to setup their accounts in such a way that they will be automatically paid each month. This allows them to avoid late payment charges. Some debts and bills will cost you a lot when you pay them late. For instance, if you make late credit card payments, the penalty charge will be added and capitalized into your balance. That means the interest that will accrue on your debt will be much higher than what should have been if you only paid your dues on time. Sometimes, it is a simple case of forgetfulness that causes people to miss a payment. For others, they were unable to budget their finances properly and that led to the money being used on something else. These seemingly simple mistakes can be avoided through automatic payments. That way, the money that is meant for your monthly debt and bills payments will not be used to pay for another expense.
4 rules that will help keep auto payment mistakesAlthough the use of auto-debit is beneficial, you need to understand that it can also go the other way. If you fail to follow certain rules, it could end up blowing in your face. What should have been saving you money might even cost you more in the long run.
To keep this from happening, here are 4 rules that you need to follow so you can maximize the use of automatic payments.Rule 1: Check if you can consolidate. It is easier to use auto-debit if you only track a few payments each month. Sometimes, multiple credit obligations can cause you to miss your payments because of confusion. There are times when you can confuse the due date of a debt with another. Or you think that you paid one bill but it was actually the other. There are so many things that can go wrong when you are trying to keep track of several bills and debt payments. If you want to make things easier, you may want to think about consolidating your debt. That way, you only have to remember one due date and make one payment. You can automate only one payment for your debts - or at least make them less confusing by combining the debts that you can consolidate. For your bills, you can probably ask your service provider to change the date of your bills so they all fall under one due date. That should make it easier to budget your money and ensure that your automatic payments will be funded. Rule 2: Keep your reminders active. In case consolidation is not possible or you still end up with more than one account to pay for each month, you need to keep your reminders active. Even if the account will be paid off automatically, you have to make sure that you have sufficient funds to pay off the debt or bill. Sometimes, even auto-debit arrangements can screw up. One article from Time.comrevealed the problems of one consumer when his auto-payments failed to make payments. The problem was, he failed to check in on the payments - maybe because he was used to having the bank take care of them. He forgot about the payments and did not check if they were being made. What happened was he got some of his utilities turned off because of it. When he checked his accounts, he also found out that some of his cancelled subscriptions were still being paid and one was actually renewed without him knowing it. The lesson here is that automatic payments should not be forgotten. You set it up but make sure that you still check on it each month. Make sure that the payments are being made and that your money is going where it is supposed to. Setting up reminders will keep you from forgetting your accounts. If anything, it will remind you to track your payments. Rule 3: Continue organizing your files (paper or digital). When we say files, we mean the billing statements and receipts - or any document (paper or digital) that is connected to the debt and bills that you are paying off each month. The thing about automatic payments is that you usually ignore the documents because the payments are being made anyway. According to a study published on Inlet digital, one-third of Millennials pay their bills without looking at them. This can be costly if you are not careful. If you are paying your credit cards - even if it is through auto-debit, you have to look at your statements to ensure that you are paying for transactions that you made. You might be paying for things that you did not make. It might be harder to dispute these transactions once they are paid for. You need to be careful with that. And make sure you file your documents. Sometimes, you have a record of paying a bill but the creditor does not. You need to show them proof that a bill or debt is paid before they charge you with a late penalty. Unless you organize your files, you might not be able to dispute or challenge errors in your credit account. You can manage your finances better anyway so it is a win-win situation for you. Rule 4: Know your rights. The final rule that you need to follow is to know your rights. If you want to use automatic payments, you have to understand what the law says about auto-debit arrangements. For instance, you should know that the Fair Credit Billing Act (FCBA), as published on FTC.govstates that cardholders are allowed to dispute incorrect charges on their statement. Consumers who have pending disputes can withhold their monthly payment and it should not affect their credit score. Not only that, in case the credit company investigates and still stands by the incorrect charges that is being disputed, the cardholder can still challenge the result of that investigation. If you will set up an auto-debit for your payments, you need to understand how the law protects your interests so you can dispute creditor, lenders and service providers when it is necessary.
Be aware of the pros and cons of automating your monthly paymentsIf you are decided on using automatic payments for your debts and bills, you need to understand the advantages and disadvantages. It all boils down to organizing your financesso you do not lose any money. Since you are already wasting money paying off debt, you do not want to increase that by making unnecessary payments if you do not have to. Automating your payments will allow you to avoid these extra charges. Here are the other advantages of auto-debit.
- It is convenient. You do not have to go to every credit or bill to send your payments. They will all be automatically debited from your account. After setting it up, the bank will handle the details. You just have to check that the transaction happens as intended.
- It helps you get rewards. For instance, some student loan payments, if you enrol it in the auto-debit program will help you get a discount. Other creditors, lenders or service providers will give you rewards points - which is convertible to something that you can use.
- It saves on the paper trail. The automatic payments will allow you to get rid of the papers and convert it into digital forms. That can be great for the environment.
- It allows you to take care of your credit score. Since the payments are being sent automatically, you are not in danger of being late on your dues. That is good for your credit scorebecause late payments make up a huge part of the computation.
Here are the disadvantages of auto-debit.
- It charges you additional fees. Obviously, having the bank do some of your work will cost you. Make sure you compare fees and select the one that will give you the most value for your money.
- It is possible to lose track of your payments. A danger in automatic payments is you get to forget what you are paying. Sometimes you get to ignore the whole account. Try not to do this and continue tracking your debts and bills so you are sure that you are making the right payments. You might be in danger of paying overdraft fees if you happen to lose money in the account where the payments are being debited.
- It is hard to stop payments. Sometimes, it is easy to setup the auto-debit but it is hard to stop them. So make sure that you double check that your payments have really ended when you asked them to.