How to Set Up Automatic Payments
Using automatic payments allows you to pay your bills on auto-pilot. You don't have to sit down and write out checks to mail to your creditors each month, and you don't even have to log into your various online accounts to pay your bills online, either. When set up correctly, automatic payments will simply pay your bills at the frequency you indicate, with no further action required on your part. (See also: 6 Tips to Shrink Your Bills Every Year)
There are two basic methods for setting up automatic payments: through your own bank or through each individual creditor's website. Here is what you need to know.
Automatic Payment Options Through a Bank's Online Bill Pay
Most every bank offers online bill pay. This allows account holders to send money from their checking or savings accounts to whoever they want, at whatever frequency they want. Some banks physically print checks and mail them to your creditors, while others will transfer money electronically.
You can set up your automatic payments by logging in to your bank's bill pay website, setting up a new payee, and entering the account number of the creditor or utility you want to pay in the appropriate fields. Most banks allow you to set up recurring payment frequencies — which means you can schedule your credit card payments, for example, to send each month before they're due and not have to worry about sending the payment on time. Some banks will not allow you to create recurring payments, in which case you will still need to sit down at the computer every time you need to make a payment.
The benefit of using a bank's online bill pay service over individual creditors' websites is that you can log in to one account and view all your scheduled payments in one place rather than logging in to multiple accounts.
If your current bank does not have automatic payments or doesn't allow you to set up recurring payments, then you can use a service like MyBankTracker.com to compare banks and find checking and savings accounts that do offer online bill pay services.
Automatic Payment Options Through Your Creditors' Websites
The other option you have for setting up automatic payments is through each of your creditor's and utility account's websites. Most credit card companies and utilities have online account management systems that allow account holders to log in and schedule payments. Many also offer options for setting up recurring payments — for example, you can set up most credit card accounts to pull money from your bank account each week, biweekly, or monthly.
Many utility companies allow you to set up automatic payments that will pull your payment from your bank account when it's due without any further action from you to make sure it gets paid on time.
Automatic Payment Pitfalls to Watch Out For
With all of the benefits offered through automatic payments, there are some pitfalls and potential problems to watch out for. The biggest pitfall people sometimes experience with automatic payments is a little mistake that can add up to hundreds of dollars. Let's say you set all of your accounts to get paid automatically, but then have an unexpected change in your income. If your income fluctuates, or a paycheck isn't deposited on time for any reason, you may find yourself with a bank account balance that isn't high enough to cover all of your automatic payments. This results in overdrafts that can quickly add up. If you had not been using automatic payments, a change in your income or delayed deposit isn't as big of a deal, since you could just hold off making your bill payment until the deposit clears.
If you are using your bank's online bill pay feature, make sure you know whether or not there is a fee for this service. Some banks offer online bill pay through savings accounts or checking accounts for free, while others charge a monthly service fee for access. Most online banks offer online bill payment for free.
When you use an individual creditor's website for automatic payments, sometimes there is a limit to how many payments will be made automatically before you need to log back into your account and schedule more. Thus, you might set everything up to make your payments on time and then realize three months later your automatic payments have stopped. Since you had been expecting your payments to get sent automatically, there's a good chance everything will be late before you realize the automatic payments ceased. Double check each of your creditor's and utilities' websites for details on the frequency of payments, and if you have accounts that only allow you to schedule a limited amount of payments at a time before you need to set it up again, make sure you mark it on your calendar or set an alert on your phone so you remember to log in and set it up again.