If you’re responsible for paying bills, you’ve probably heard of autopay. Autopay allows you to set up automatic bank withdrawals or credit card payments to cover your bills.
The payment method appeals to consumers for two reasons: it simplifies bill payments and can save you money. When you put a bill on autopay, you don’t have to remember to submit a manual payment, eliminating the likelihood of a missed due date and associated credit score ding. Plus, some companies offer a slight interest rate reduction or bill discount when you set up automatic payments.
However, autopay isn’t perfect and can cause major money management problems. Keep reading to see the stories of two consumers who experienced autopay issues, what they learned from them and what advice they have for others. That way, you can avoid the same fate.
Dr. Darla Bishop, author of “How to Afford Everything” and founder of Finansis, said she used autopay for most of her recurring bills because it kept her organized when her life got hectic.
“I didn’t want to risk forgetting a payment and hurting my credit score,” she said. “Autopay gave me peace of mind and helped me stay consistent, even during tough times, like when I lost a family member and was too distracted to keep up with payments manually.”
Recently, her bank’s autopay system didn’t recognize a manual payment she made earlier in the month and still processed the regularly scheduled automatic payment. As a result, her cash flow was temporarily impacted, leading to unnecessary frustration. If she could go back in time, she would have paused autopay the month she submitted a manual payment.
While Bishop plans to continue using autopay due to its convenience, she has adjusted her strategy.
“I now set autopay for the minimum due on credit cards to avoid late fees but make manual payments for any additional amounts. That way, I avoid overpayments while still getting the benefits of autopay,” Bishop said.
Her major takeaway from the experience was to pay attention to how payments get applied.
“It’s important to know whether extra payments go toward the principal balance or are applied to future payments. In many cases, you need to specifically direct how those payments should be allocated,” she added.
Miranda Marquit, MBA, is a financial wellness advocate who also uses autopay often.
“Autopay can be a great way to stay on top of bills, especially if you travel a lot. So, I have it for my utility bills, insurance, student loans and other recurring bills,” she said.
Over the years, she’s had two autopay-related issues. The first happened when she and her then-husband both made purchases from the same checking account on the day a large credit card automatic payment was also scheduled to come from that account. The bank processed all of the transactions at once, resulting in a negative account balance. Marquit ended up with a cash flow problem and two overdraft fees totaling $70.
The next issue happened when her apartment lease got renewed. The property management company didn’t factor in her discounted rent for renewing for two years, so her automatic payments were higher than they should have been. She didn’t notice the overcharge for two months and when she brought it up, the property management company fought her on refunding the overage and adjusting the autopay amount.
Like Bishop, Marquit will continue to use autopay because it makes her life easier overall. However, she’s monitoring it much more closely. “I have a money date with myself twice a month just to review transactions and bills and make sure the autopays [sic] are accurate,” Marquit said.
“I wish that I had originally taken the time to look at my monthly cash flow and understand how money moves through my personal economy before setting [automatic payments] up,” said Marquit, in reference to a few negative experiences. Luckily, you can often pick the date an automatic payment gets processed to accommodate your cash flow.
However, Marquit didn’t do that previously and let all her automatic payments cluster together. “There have been a couple of times where all the autopays came out at once, just before income reached my account and I either ended up with returned payments (and their fees) or overdrafts (and their fees),” she said.
In addition to the wisdom from her story, Bishop offered the following two autopay best practices:
Test autopay with one or two bills to see how it works before setting it up for all of your monthly obligations.
Sign up for alerts from your bank to stay on top of upcoming payments and account balances.
“Autopay has been a lifesaver for me, but it’s not perfect. Staying proactive — by double-checking your payments and understanding your bank’s system — can help you avoid hiccups like overpayments. It’s a tool, not a replacement for regular account management,” Bishop added.
