Use This Powerful Financial Tool with Care
Do automatic payments make sense for your finances? Setting up regular withdrawals for your bills and subscriptions can make life significantly more convenient, but it can also come with some downsides. Keep these pros and cons in mind as you consider whether to integrate automatic payments into your everyday life.
Types of Automatic Payments
Typically, automatic payments are made using one of two methods. With the first method, you can authorize your financial institution to automatically withdraw money from your account and send it as a payment each month. With the second method, you give the company you’re paying permission to withdraw money directly from your account. Paying through your financial institution gives you more control, but it’s typically less flexible. Allowing direct withdrawals may make more sense for you if a bill’s amount or due date varies each month, but you’ll also have to give up some control.
Pros of Automatic Payments
Timeliness: Automatic payments come with quite a few benefits — the biggest of which is peace of mind about paying your bills on time. Instead of having to remember to mail a payment or log onto an account each month, you can relax and let your bank or biller take care of things. You also won’t have to worry about late fees. Automatic payments can even help you build a history of on-time payments and boost your credit score.
Sustainability: If living an eco-friendly lifestyle is a priority for you, setting up automatic payments can help. By using automatic payments you’ll use less paper since you’ll be writing fewer checks, buying fewer stamps and switching to paperless billing. You’ll also contribute to reduced emissions by sending and receiving less mail.
Security: Even though some people fear that automatic online payments aren’t safe, Citywide Banks protects you — and us — with sturdy security measures. You run a greater risk of identity theft when you use an unsecured mailbox to send a paper bill payment that includes sensitive financial information like your checking account or credit card number.
Cons of Automatic Payments
Overdraft Risk: Automatic payments do have some drawbacks. If you’re not carefully tracking how much you spend each month and making sure you have enough money in your account to cover your automatic payments, you could forget about a large upcoming payment and end up overdrawing your account.
Undetected Errors: With automatic bill payments, it’s easy to get complacent about the money that’s leaving your account. Your biller could accidentally withdraw the wrong amount or double-charge you. It could even fail to withdraw the money at all. Sometimes, companies continue to withdraw money even after you’ve canceled services. If you’re not checking your account regularly, you might overlook an incorrect charge.
Unnecessary Spending: It’s convenient to set up automatic payments for streaming services, gym memberships, meal delivery kits and other optional expenditures. But what if you stop using these services or aren’t getting your money’s worth? If you lose track of what you’re paying for each month, you could end up draining funds from your account for no good reason.
Automatic payments come with some powerful advantages, but they’re not free of risk. If you decide to give them a key role in your finances, make sure you continue to check your balances and expenditures regularly, and consider setting up a series of alerts and reminders to keep yourself informed about the money that’s leaving your account.
Identifying Your Wants vs. Needs
The foundation of successfully managing your finances is budgeting, and a pillar of budgeting is learning to distinguish your needs from your wants.
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