How to set up automatic payments

Automatic payments can be a convenient way to ensure that bills are paid on time, every time. With this option, a system can be set up to automatically pay recurring expenses, taking the hassle out of remembering due dates and manually making payments.

This article covers the basics of automatic payments: what they are, how they work, and how to set them up. It also highlights some considerations when using automatic payments, including the potential benefits and drawbacks.

What is an automatic payment?

Automatic payments, or auto pay, can be a convenient and hassle-free way to manage recurring payments.

This payment method enables a company or organization to withdraw a predetermined amount from a customer’s bank, payment card, or other payment account each due date to cover recurring expenses. This can potentially make paying bills less tedious and time consuming.

Availability to pay bills using automatic payments will depend on the options offered by the billing company. Fees and other costs may apply.

Below are a few examples of expenses that can typically be paid using automatic payments:

• Utility bills
• Car loan payments
• Rent and mortgage payments
• Insurance premiums
• Subscription services
• Tuition and student loans
• Charitable donations
• Credit card bills

By setting up automatic bill payments, it’s possible to save time, avoid potential late fees and penalties, and ensure that payments are always made by the due date.

However, even when using auto pay, it's important to monitor accounts and review bills regularly to make sure everything is accurate and up to date.

How do automatic payments work?

Automatic payments can be a great option for recurring bills. They can be set up with the company receiving the payment, a bank or spending account, or sometimes a credit card.

When setting up an automatic payment with a company, the customer usually provides account information and authorizes the company to withdraw a specific amount each month to cover their bill. This information is then securely stored in the company’s system, and the payment is automatically deducted on the due date.

It is also possible to set up automatic payments through a bank account or credit card. Many banks and credit card companies offer an automatic payment service that allows scheduling of recurring payments from an account to pay bills.

How to set up automatic payments

Setting up automatic payments will vary depending on the biller or company. It is usually required to input a payment method when signing up for a new service or account — if so, one can select automatic payment (if available) when creating an account. Otherwise, it’s typically possible to change a payment method to automatic for accounts that are already active or in place.

Below are some example steps to set up automatic payments:

• Start by making a list of recurring bills and deciding which ones to automate.
• Next, choose a payment method and gather the necessary account information.
• Log in to the billing company’s payment portal and set up automatic payments. If the option isn’t readily available in the portal, contact customer service to determine if the company offers an auto pay option. Alternatively, set up automatic payments directly via a bank account or credit card following similar steps.
• When setting up automatic payments, be sure to monitor accounts and billing statements regularly to ensure that bill payments are being processed correctly and that the payment account has enough funds available to cover the payments.

Using a bank’s online bill payment system

Through a bank’s or financial provider’s online bill payment system, it’s usually possible to instruct them to pay bills automatically, saving time and effort.

After setting the amount to pay, who to pay, and when to pay, an account holder can authorize an automatic deduction from an account to the billing company on a specified date each month.

Some banks will allow payments to be deducted even if there aren’t enough funds in the account, meaning the account holder will likely be charged an overdraft fee. Keep track that account funds are sufficient to cover automatic payments to avoid any unwanted fees.

Using a credit card for automatic payments

When using a credit card for automatic payments, a cardholder can provide credit card information to the biller in order to process payments automatically. Some companies may charge a fee for paying via credit card, so be sure to read over terms when setting up payments.

When using a credit card for automatic payments, it’s also wise to keep track of credit card statements and review that the payments have been processed correctly. And, as always, one should only add payments to a credit card that they are able to pay off and manage — otherwise there is a risk of accruing debt and dealing with potential fees.

Directly with the biller

If making automatic payments directly with the biller, the account holder can provide the biller with bank or payment account information, including routing and account numbers.

The biller can then set up automatic payments that will be processed on the due date of the bills. This means that the bill amount will be automatically transferred from the account holder’s bank account to the biller's account.

Pros and cons of automatic bill payments

Are automatic payments the right option? Here are some advantages and drawbacks to this payment method.

Potential pros of automatic payments

When using online recurring payments, people could:

• Save time and effort, as they don't have to manually initiate payments each month.
• Potentially avoid late fees, penalties, or negative impacts on credit score due to missed payments and other factors.
• Set payments up to fit a preferred payment schedule, such as weekly, bi-weekly, or monthly.
• Reduce the need for paper checks, invoices, or receipts.
• Take advantage of discounts or rewards when managing subscriptions, as some billers offer perks for paying via auto pay. For example, some stores may offer a percentage savings off full price on recurring orders or subscriptions.

Potential cons of automatic payments

Before setting up an automatic payment, keep these factors in mind:

• If there aren't enough funds in an account to cover an automatic payment, it’s possible to be charged overdraft fees.
• Once an automatic payment is set up, it can be easy to forget about them and lose track of expenses.
• Automatic payments may continue even if disputing a bill or if there is an issue with the service.
• Payment information may need to be updated if the bill amount changes.
• Canceling automatic payments may require contacting the biller or bank directly, which can be a hassle.
• Some billers may only offer automatic payments through certain payment methods, such as credit cards or bank accounts.

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