In the spirit of Halloween, I thought I’d start with a scary story:
A girl sits alone in an otherwise empty living room on a cool and grey October morning. She opens her online banking to get a pulse on her funds. Her available balance appears normal. She opens her pending transactions to find
a scheduled ACH withdrawal for ~$1800!!!!!
dun dun DUN!!!!
Okay – lame story. But honestly and terrifyingly true. This happened to me just last Wednesday. After getting on The Plan, I scheduled automatic payments on my credit accounts – but on one account I made a mistake in specifying how much I wanted to pay.
Turns out I didn’t need to freak out as much as I did. My bank wouldn’t process the payment since my checking account didn’t have sufficient funds to cover the transaction. My next worry was that the creditor would continue to attempt to collect – driving up my returned check/overdraft fees on both my outstanding balance and my checking account. I corrected my Autopay setup online and then gave them a call. That creditor in particular will only attempt a charge a single time, so in the end things were totally fine.
Despite my scare, I fully take advantage of Autopay and scheduled payments for almost all of my expenses.
It’s pretty straightforward, but for anyone unfamiliar with how automatic or scheduled payments work they generally function like so:
- A payment method is stored or saved to your account. Depending on the type of account, debit cards, checking accounts or credit cards may be accepted. In my experience, credit cards are typically not acceptable forms of payment for utilities or for making payments on other credit accounts (loan payments, other credit cards).
- A transaction is scheduled to make a payment on your account using the stored payment method.
- Scheduled payments allow you to schedule a payment for a specified amount (minimum due, full balance, or specific amount) on a specified day.
- Recurring payments authorize automated payments from your stored payment method. Sometimes you can choose what day the transaction posts, but other times it will post on or before your due date. Automatic payment practices differ from company to company and lender to lender, so be sure to read the details for your vendor or lender.
- Like scheduled payments, automatic recurring payments may also allow you to choose a specified amount to be charged or withdrawn each month. You may have the options to choose from your minimum due, full statement balance, or a specific dollar amount.
Can you guess where I messed up?
For a second I didn’t even understand why anyone would set up Autopay if they intended to pay off their statement in full. My thought was – if you’re paying it all off, why would you need to pay it off again next month?
And then I remembered that not all borrowers behave equally. While I am strictly paying down my debt, I forget that others use credit regularly. People often use credit cards to pay for their expenses, and then pay off their balance in full. This shows that they know how to responsibly use credit and can help to improve or maintain their credit score. Believe it or not, merely a year ago I used to be one of those people. I’ve strayed off the path – but I’m on my way towards getting it right again – and automatic payments are gonna help me do it.
The reason I like Autopay is that it prevents me from forgetting to make a payment on an account – which prevents me from getting charged late fees that will add to my overall debt.
Another reason I like Autopay is because it takes the money away from me. If I don’t have it, I can’t spend it. I’d rather pay my bills and my creditors right away than to have money sitting in my checking account and mistakenly think I have extra funds to spend. I always try to schedule my payments for the same date that my paycheck is deposited into my account. At my point in life right now, the less I touch my money, the better.
For most of my credit lines, I have multiple payments scheduled a month. The main reason for this is CASH FLOW. Generally the first half of the month is more expensive due to rent so I tend to make my largest credit payments my 2nd paycheck of the month. However, most of my billing due dates also fall in the first half of the month, even after I’ve requested a different due date when possible.
Because of this, I have credit lines where I pay the minimum balance on the due date, and then make my larger payments when my 2nd paycheck comes in. Auto payments are especially handy for this because instead of having to handle 4 transactions for 2 accounts in 1 month, I set it and forget it.
Autopay is convenient, but you still need to be vigilant.
If you’re not paying attention during the setup process, you might miss something huge (like $1800 that you didn’t intend to authorize).
Even if you have autopay set up, you should still check your accounts regularly.
You’ll want to make sure that your payments are at least covering your minimum due, and that you’re not making payments on accounts that are already current and paid in full. On my extreme budgeting plan for example, I should have 2 credit cards paid off in the next 4 months so I need to stop Autopay on those accounts when they’re brought down a zero balance.
Checking in on your accounts is also important because you might catch unexpected expenditures – such as forgotten subscription plans or fraudulent spending. By checking in on my accounts, I discovered that I was getting charged $17/month for a magazine subscription. I don’t even get any magazines. I don’t even like magazines.
I’m getting really hyped about paying all my debt down.
Once my debt becomes more manageable, I’d like to formulate some kind of Savings Plan.