3 Ways Automatic Payments Can Hurt Your Finances
3 Ways Automatic Payments Can Hurt Your Finances
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Automatic payments have transformed the way we bank, pay bills, and handle many other financial tasks. We can automate our savings; we can automate our retirement; we can even automate our toilet paper supply.
Unless you are in the small minority of people who don’t trust online bill pay, it has probably been a while since you wrote out a bunch of checks for your bills, put them in envelopes, stamped them, and dropped them in the mailbox. I still buy stamps, and a book of stamps seems to last me forever.
Whether you have automatic payments set up through your bank or directly with your utility companies and other service providers, being able to “set and forget” your bills brings convenience and simplicity to how you approach paying your bills each month.
Unfortunately, as convenient as automatic payments are in our busy and fast-paced culture, that convenience can also impact you negatively. If you do pay your bills automatically (which I recommend), you also need to be aware of the ways in which it can hurt your bottom line.
Here are three ways automatic payments can hurt your finances.
You Continue Paying for Services You Don’t Use
Do you have your gym membership on automatic payments? Do you actually go to the gym? How about the tv subscription or meal plan subscription you no longer use? Or that free trial that turned into a paid service when you didn’t cancel and now auto-renews each month?
We all know how the story goes. You plan to cancel the gym membership, subscription, etc., this month, but then the charge goes through. Okay, you’ll cancel next month. Oh, missed it again! And so on and so on. This can continue for months. Those payments add up and represent money you could use elsewhere — even if it’s just a few dollars a month.
Automatic payments benefit you because of the convenience, but they also benefit companies and marketers because they keep you paying for services you no longer use. I am sure companies know, on average, how many months it will take us to cancel automatic payments for their product or service.
Take a look at any services you are paying for that you don’t use and cancel them today!
You Miss Increases and Errors on Your Accounts
Many people take the forgetting part of “setting and forgetting” automatic payments to heart and don’t even look at their monthly statements anymore, especially with the additional convenience of paperless billing.
When that’s the case, you can easily miss an increase to your monthly payment or an erroneous charge. Even if you do notice a change in your monthly amount when your payment clears, you are less likely to call up your company and challenge it since you’ve already paid — especially if the increase isn’t too significant.
To counter missing out on changes to your payments, be sure to open up your statements for a quick review of the charges. If you have paperless billing, you should receive an email when your bill is ready for viewing. Make a habit of going online and looking at it. If you notice an error or increase to your payment, call your company right away.
You Miss the Impact of the Expense
Just like we don’t feel the impact of making purchases when we use debit cards and credit cards instead of cash, having your bills on automatic payments can cause you not to feel the impact of the expense at all.
Yes, you see the amount deducted from your checking account each month, but because you didn’t interact in the paying of the bill, you are kind of dull to the effect it has on your bottom line. The expense almost doesn’t feel real.
As a result, you may continue paying for months or even years without objectively reviewing the necessity of an expense and how it fits in with your overall plan. Perhaps you are over-insured, or your needs for a service have changed. A yearly audit or review of your bills can ensure that you periodically look at all your expenses and gives you an opportunity to cut back or eliminate expenses you no longer want or need.
The Pros of Automatic Payments Outweigh the Cons
While these “cons” of automatic payments can impact us negatively, that is no reason to go back to paying bills manually. Being aware of these negatives and taking steps to counter them will keep you experiencing the benefits of having automatic payments.
Be sure to cancel payments for services you no longer use right away, review your monthly statements as soon as they come, and periodically review all your expenses, and you’ll continue to enjoy the convenience, consistency, and simplicity of automatic payments.
Do you use automatic payments to pay your bills? How have they helped or hurt your finances?
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