Automatic Payment Pitfalls—How to Avoid Hidden Fees and Over Payments

By Hilary Decent
August 2015 View more Finance

Fed up with forgetting to settle your debts, spending hours filling out checks, or simply struggling to keep track of everything? Autopaying your bills sounds like the obvious answer. Just arrange for your bank to set it up for you and you can forget all about it. However, before you set it and forget it, there are some things you should keep in mind.

Potential Payment Pitfalls

Automatic payments can have their pitfalls. Kim Coyne, vice president and personal banking manager of Naperville Bank and Trust, says although the method is safer than paying by mail, consumers cannot simply set up automatic payments and forget all about them.

“We recommend automatic payment to clients in cases where they would like the convenience and peace of mind of knowing their bills are being paid, but caution them to make sure funds are available each month,” said Coyne. “We also advise clients to check their statements and billing charges each month to ensure the amounts are accurate and that they are not underpaying credit card bills or mortgage payments.”

Curtis Stowers, president of F5 Financial Planning agrees. “Where consumers need to be careful is in automating payments associated with new purchases or new providers. There are two reasons for this,” said Stowers. “First, it is easy to fall into the ‘it’s only’ trap when making a purchase and putting it on credit. Pretty soon the ‘it’s only’s’ add up to some significant cash outflows that stress the household budget. Second, the highest risk for errors occurs when setting up new payments. Accordingly, you need to monitor your new electronic payments through the first two or three billing cycles to make sure that the payments are processed properly.”

Monitor Cash Flow

Stowers says automatic payments cannot be a ‘set it and forget it’ activity. Cash flow must be monitored to make sure nothing out of the ordinary is happening. “I encourage my clients to use some sort of account aggregation tool that lets them see all of their income and expense items in a single place,” said Stowers. “If they don’t have access to such a tool, checking the history of your credit cards and bank accounts on a weekly basis is a must.”

Financial experts offer the following tips:

Stay Informed

Keep on top of memberships that ask you to use a checking account or credit card for automatic payment. If you quit, be sure to tell your credit card issuer or bank representative. Some clubs require a 30 days notice before the automatic billing stops.

Take Your Time

Don’t rush to set up auto payments. Take a few months to see if you like their services and are comfortable allowing them to have access to your accounts.

Know Your Rights

The Fair Credit Billing Act states that if you dispute a charge on your card, the card issuer is obliged to investigate or remove it.

Back Up Your Transactions

Print or save electronic bills or file your paper statements for future reference. If there are any discrepancies you have easily accessible evidence. Don’t set up a monthly payment schedule for your credit cards without scheduling your own monthly viewing of due dates for each bill.

Protect Your Identity

To prevent fraud, don’t use easy to guess passwords. Change them regularly. Run anti-virus software regularly on your personal computer and try to never use public computers to access or pay your automatic payment accounts.

Be Accurate

When setting up auto payments make sure to type in the correct spelling of the web address for your bank or credit card issuer. Scam artists can steal information when you accidentally visit the wrong (i.e. phony) site and enter your personal information.