I was in my first month working from home as a freelance writer and digital media data analyst when disaster struck. I’d been using online billpay for years, taking advantage of automatic payments to ensure all my bills were paid on time. Maybe that’s why I simply forgot to look at the dollar amount on my credit card bill. What ensued was nothing short of a nightmare, at least for someone like me, who prides herself on knowing where each and every penny of her family’s income and savings is at every single moment.
Here’s a quick rundown of the service charges and penalties I incurred:
- $25 service fee from my credit card company for the bounced online bill payment
- $20 service fee from my electric company for a bounced online payment, which was processed after the credit card payment
- $25 service fee from my cell phone carrier for yet another bounced payment (this is what we call a domino effect, folks)
- my credit card being declined after the clerk at the grocery store rang up my entire order
As if the embarrassment of having my credit card declined – for the first time in my life – wasn’t enough, I was even more mortified when I called my credit card, electric and cell phone companies to beg for forgiveness. Two out of the three granted their forgiveness in the form of a refunded service fee, based on my previously pristine history of on time payments.
I’d always thought the option to pay my account automatically was a fail-safe option, one of the rudimentary rules of personal finance. Now, I’ve learned the hard way that automatic payments have a darker side.
There are two main places to pay your online accounts: directly through the company’s website or through a third-party financial institution like your bank or credit union. Prior to my overdraft debacle, I had used a mishmosh of the two to pay my bills. For the bills that were the same month to month – like my $79.42 cell phone bill – I used the company’s website. For the bills that varied month to month, like my utility and credit card bills, I relied on my bank’s online billpay feature.
Scheduled vs Automatic Payments
Whether you’re paying online accounts through your bank or directly through the billing company’s website, you have yet another option: scheduled or automatic payments. With scheduled payments, your bank or billing company send you an email, text or other multi-media alert to let you know you have a bill waiting for you. Then, you log on to your online account to review and pay the bill. With automatic payments, you’re taken out of the equation entirely; instead of sending you a message urging you to log on and view your bill, your bank or billing company automatically drafts the funds from your account to pay the bill.
Where I Went Wrong
By using a combination of scheduled and automatic payments, as well as using both the online billpay options available through my bank and the billing companies’ websites, I was setting myself up for failure. First of all, I was taking something that should have simplified my life – paying online – and making it far more complicated by forcing myself to visit multiple websites to view my bills. Secondly, by reviewing some, but not all, of my bills, I was making it more likely that I’d forget about those automatic payments.
What I Learned
Since this fiasco, I’ve done a lot of research on the potential pitfalls of automatic payments and online billpay in general. While I understand the risks – lost payments, delayed payments, additional fees – I’ve made the personal decision that the convenience of paying online outweighs the risks… as long as you do it the right way. I’ve learned from my past mistakes by streamlining my online accounts, ensuring that I play an active role in paying my bills:
- Direct all your online bills to your bank account. Having all your bills in one place makes it easier to keep track of them, and reduces the odds that you’ll overlook something. My bank’s online billpay service also keeps track of my payments from month to month, allowing me to easily compare how much I spent to heat my home last winter compared to this winter, or printing out the information for tax purposes (since I freelance from home, this helps me big time when it comes to itemizing).
- Resist the urge to sign up for automatic payments. You may think this service is helping you, but it’s really hindering your financial freedom by minimizing your interaction with the payment process. When you don’t have to review your bills, you’re less likely to catch errors, extraneous charges or even signs of fraud.
- Link your bank accounts. I have three accounts through my bank: a checking account, a savings account and a high-yield money market account. In the past, I’d operated each of these accounts independently of the other. After I was charged $70 in service fees for bounced online bill payments, I decided to link my checking account to my basic savings account. By linking the two, I’ve guaranteed I’ll always have enough money to pay my bills. Of course, my bank will charge me a $10 service fee to dip into my savings account if I overdraft my checking account, but that’s far less than the $20-$25 services fees charged by most billers.
Online billpay is a way of life . In October 2011, the number of American households paying online on a monthly basis was 44 million – that number is expected to soar to 55 million households by 2016. Who uses checks and stamps these days, anyway?
Which bills do you pay online? Do you take advantage of automatic payments? Why or why not?