With Automatic Bill Pay, Don't "Set It and Forget It"

The advantages of automated payments can be very seductive. You never have to write a check. You save time, postage, and headaches. If your payments are charged to your credit card, you can build up rewards, and you have the peace of mind that comes from knowing that you’ll never miss a payment. There are some downsides that come with putting your bill payments on autopilot, however, and you should be aware of them before you sign up.

The use of automatic bill pay and online bill pay services has soared recently. A 2010 survey by research firm Fiserv found that 19.3 million consumers used both their online bank bill pay service and visit biller-direct sites on a monthly basis, up 25% from last year.

If you’re lured by the idea of forgetting about bill paying, forget it. Automatic bill payments often require that you be more diligent in monitoring when bills need to be paid, and how much is going out. If you “set it and forget it” with automatic bill payments, you may get stuck paying fees if your bank account is overdrawn, or face a stiff over-the-limit fee from your credit-card issuer.

There’s also a chance that glitches at your bank could have disastrous results, such as a late or misdirected payment. And if you change your bank account or your credit-card company issues you a new card with a new number, you’ll have to remember to notify everybody on your automatic bill pay list or risk being slapped with late charges.

If you want out of the automatic bill pay program, payments that you arrange with your bank for things such as utility bills are fairly easy to cancel. Usually all you have to do to opt-out of automatic pay is call or write your bank at least three business days before the payment is scheduled.

Payments that you arrange with a third party, however, such as mortgage payments, can be a lot harder to cancel. With these transactions, the payee is in the driver's seat. In effect, the form authorizing the automatic payment is a contract and breaking that contract can be difficult. It’s a good idea to make sure you know how quickly and easily you can stop or cancel an automatic payment before you sign anything.

To avoid unnecessary charges or hassles when using automatic bill pay, CreditCards.com recommends you follow these steps:

1. Fee or free? Some auto bill pay programs are free, but others charge for the convenience. Before you sign up for auto bill pay, make it’s worth the cost.

2. Pay off your card balance every month. The convenience of paying bills with your credit card can get very expensive if you carry the balance month over month. Avoid paying interest on your bills by paying the card balance off every month before finance charges kick in.

3. Watch your due dates. Check your monthly statements every month to make sure the company hasn’t changed the payment due dates (and verify that you paid what you owed).

4. Monitor your memberships. As we said, it can be difficult to get a company, such as your mortgage company or the local gym, to stop taking money from your account once you’ve given it permission to start. “Free” trial memberships will turn into paid services as well, if you don’t cancel them before the trial period expires. Stay on top of your memberships.

5. Don’t rush into automation. Speaking of your local gym, make sure you regularly use a company’s products or services and are happy with them before signing up for auto bill pay. (Again, with auto bill pay, it’s a lot easier to start than to stop.)

6. Know your rights. By law, if you dispute a charge on your credit card, the card issuer is obligated to investigate or remove the charge.

7. Stay on top of your credit card. One way credit-card issuers trip up their customers is by changing their monthly payment due dates. (These notices are often missed by their customers, leading to lucrative late-payment fees.) Others have increased -- in some case doubling — the minimum monthly payment due. Check your statement every month to make sure you know what your payment needs to be made, and for how much, to avoid late-payment fees and a potential ding to your credit score.

8. Save your statements. Some companies make only recent bill statements available online. If you don’t want to print out and save bill statements every month, download and store the digital statement on your computer in case a dispute arises down the road.

9. Protect yourself. When setting up bill pay accounts, create difficult-to-crack passwords (don’t include information that’s easy to figure out, such as your dog’s name or your wedding anniversary). Always use anti-virus software to detect “spyware” or key-logging programs that can steal your account info and passwords. And never use a public computer to access your financial accounts.

10. Use a protected website. Legitimate bill pay websites use Secure Socket Layer (SSL) technology, which encrypts sensitive data. (Look for the “s” in the https:// in the website’s address.)

For more tips on how to protect yourself when using automated bill pay, visit CreditCards.com.