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When it comes to your money, being able to “set it and forget it” can make paying bills that much easier.
Before you put every one of your accounts on auto-pay, understand that while it can make life super-convenient, it can just as easily do damage if you're not careful with how you use it.
After all, setting up automated payments means you're allowing your money to leave your checking account on a recurring basis each month in order to pay your credit card company, mortgage lender, cell phone provider, subscription service provider, etc. — which could be disastrous if you're not paying attention to all those debits. (Side note: While you could also set up auto-pay to charge your credit card instead, we don't recommend that unless you're confident you can pay off your balances each month.)
Not sure if auto-pay makes sense for you? Consider these pros and cons.
The Case for Auto-Pay
You're making it easier to stick to your goals. The most obvious pro for auto-pay is, of course, convenience in paying your bills. But perhaps even more important, auto-pay helps make it easier for you to reach goals you've set for yourself — including paying yourself first.
“The biggest benefit to using auto-pay is consistency — putting a plan in place and being held responsible,” says Jason Preti, CFP®, a financial planner based outside Seattle. “Setting the auto-pay for paying off a credit card or adding money to a savings account means it becomes a permanent line item in the budget."
In other words, by automating goals like debt payoff or boosting your savings, you're placing them higher on your priority list, rather than putting “whatever’s left” at the end of the month toward them.
You're eliminating paperwork. Auto-pay produces less paperwork and fewer bills in the mail since most of the “paper trail” is electronic. That’s good news for your filing cabinets and the environment, too. Plus, “If you travel a lot, it’s a great way to make sure your bills get paid if you’re not home to receive them,” says Kathleen Burns Kingsbury, a financial therapist near Burlington, Vermont.
You could save money. Electronic payments can save you money in the obvious ways — there's no need to buy stamps, and it’s much easier to avoid late payments and subsequent penalty fees — but there are also hidden benefits. Some lenders, like student loan providers, offer a small interest rate discount to people using auto-pay for their recurring bills. Several phone companies also offer bonuses for signing up for auto-pay, from extra data to bill credits.
Auto-pay can also be a way to keep spending in check, Preti says, especially when withdrawals are timed closely to paydays. If the money isn’t in your checking account because it’s already been allotted to your necessary bills, you can’t blow it on an impulse splurge.
You're helping keep your credit score healthy. Your payment history (i.e., whether you pay your bills on time) makes up 35% of your FICO credit score — the largest contributing factor. So auto-paying bills can help ensure you don't miss payments that can potentially ding your score. And with a better score, lenders and credit card companies are more likely to offer you better terms, such as lower interest rates.
The Case Against Auto-Pay
You may feel less active in your money life. If you're the type who prefers to keep tabs on every single line item in your budget, auto-pay may veer too heavily into “out of sight, out of mind” territory, Kingsbury says.
Plus, you might overlook mistakes that occasionally occur with auto-pay, such as double payments, missed payments (companies may charge you for that even if it wasn't your fault) and fees you’ve never seen before, which could signal fraud.
You may struggle with your cash flow. If you’re living paycheck-to-paycheck and find you have little cash cushion at the end of each month, auto-pay may not be for you. One wrongly timed debit could result in an overdrawn account, bounced checks or a domino effect of subsequent missed payments — and all the penalty fees that come with those.
You may get too comfortable making minimum payments. If you're only auto-paying the minimum amount due on high-interest debt (and indeed, some lenders only allow you to auto-pay minimum amounts) then you may be making it harder on yourself to chip away at those balances. If you can afford to put more toward high-interest credit cards or private student loans, for example, you probably should, in order to avoid paying more in interest in the long run.
Enrolling in auto-pay may also make it harder to make the occasional, one-off big payment to your account, such as doubling-down on a car payment if a windfall comes your way.
You could end up paying for things you no longer use. Think music or video streaming services, gym memberships, online gaming platforms, subscription boxes, membership sites and even storage lockers you no longer need. All of these can easily and unnecessarily drain a budget.
Kingsbury recommends going over all of your auto-pay expenses once a year to determine what stays and what goes. She also suggests making sure your auto-pay withdrawals come out of only one account so it’s easier to see everything in one place.
The Final Verdict
Auto-pay can be a good thing if you're committed to staying on top of your finances and have some wiggle room in your budget. Basically, if your bank can handle multiple automated payments with ease and you have a good handle on your spending and are confident you won't overdraw, then auto-pay away.
However, if managing the money that comes in and out of your bank account feels stressful, you may want to think twice about going the auto-pay route. It could be that you have to do a little more fine-tuning to your budget and spending before you set up any recurring debits.
If you like the idea of auto-pay but need flexibility from time to time, consider the following questions before setting it up:
- Can you adjust or cancel your auto-payments?
- Can you choose your withdrawal date and amount?
- If you make a one-time manual payment, does it undo auto-pay for the future?
It might also be a good strategy to keep a paper or electronic document with all of your auto-pay amounts in one place so you're aware of what it is you're paying each month. As Preti puts it, “Auto-pay is a tool to simplify your life, not a no-fail budget fixer.”