Last week, we published The Pros of Automated Payments, a post which listed the benefits of making electronic bill payments.
At Two Roads, we believe that every decision should be an informed decision, especially when it comes to finances. This is why we’ve also researched the drawbacks associated with automated payments and why you should be cautious before deciding if paying bills electronically is right for you. So, here they are:
Difficult to Remember
Because they are automatic, automated payments are difficult to monitor. You might find it hard to keep track of how many bills you have and which bill is paid when. This will make it much more challenging to budget appropriately and stay up to date with credit card and checking account balances.
High Credit Card Balance
Those who do pay their bills using the automated payment option often have higher credit card balances, so be sure to always pay your balance in full each month. Paying only the minimum payment will drop your credit score, inflate your monthly balance, and increase it with owed interest and other credit card fees.
Banking Fees
Many banks charge a service fee for automated payments, so be sure to read your bank’s terms and conditions before you decide to pay your bills automatically. Also, scheduling electronic bill payments makes over drafting your account very easy, especially because they are so difficult to monitor as mentioned in the point above. While a paper check may take anywhere from a few days to a week to process, electronic payments usually clear your account in 24-48 hours. Keep a good eye on your balance and all scheduled deductions to avoid overdraft charges.
Security Risks
While identity theft is much more likely when paying bills the old fashioned way, be mindful of the security risks that can occur when transmitting any kind of personal information online. Although electronic payments eliminate a paper trail, there is still the possibility that your information may be illegally intercepted. The best way to reduce your odds of being a victim to this kind of crime is to invest in anti-virus software and make sure your Internet connection is secure before you transmit any sensitive information.
Electronic Errors
Although uncommon, mistakes happen and electronic errors can occur. Be sure to review your accounts regularly to make certain your bill payments are being made correctly.
Stopping Payments
It is more difficult to stop payments on a bill that is paid automatically than one that is paid by hand. For example, in the happenstance your credit card is lost, stolen, expired, or cancelled. Because automated payments are not made in response to statement reminders, you would have to track down every bill payment you previously scheduled and transfer each one to a new card. This hiccup in what was once a simple process could easily result in late fees and bills left unpaid.
If you’re still considering paying your bills electronically after reading these cons, why not explore the benefits? Read our previous post, The Pros of Automated Payments, and find out how you can save time, money, and a lot of headache through this payment method.
For more information on how Two Roads can assist you with preparing taxes, writing a budget, setting financial goals, or provide general bookkeeping strategy, please contact us at 865-212-0063.
FAQs
Disadvantages of automatic bill payments include the difficulty in canceling them, the need to keep adequate funds in your checking account, and the potential of incurring a returned payment or late fee.
What are the cons of automatic payments? ›
Disadvantages of automatic bill payments include the difficulty in canceling them, the need to keep adequate funds in your checking account, and the potential of incurring a returned payment or late fee.
What are the risks of automatic payments? ›
Cons
- You could overspend. If you forget about the automatic drafts from your financial accounts, your spending might push your account balance lower than the amount you need to cover your preset bill payments.
- You could get hit with fees. ...
- You have to monitor your account balances.
Advantages of using automatic withdrawal include avoiding late payment fees and the convenience of not needing stamps or mailboxes, while disadvantages include the need to share account information, potential for not knowing payment dates, possible overdraft fees, and potential service fees.
Is automated payment safe? ›
Many people ask whether taking credit card payments over the phone is safe. The answer is – yes, as long as you follow the correct protocols.
What are some disadvantages of electronic payment? ›
10 Disadvantages and Concerns of Online Payments
- Risk of Fraud. This is the first concern that comes to mind when we think of risks related to digital payments. ...
- Technical Issues. ...
- Transaction Limits. ...
- Dependency on Internet. ...
- Identity Theft. ...
- Loss Of Cards. ...
- Unfamiliarity With Technology. ...
- Password Threats.
This can lead to late payment or even default, causing problems for your cash flow. “Terms that are too lenient may give the impression there is no urgency for payment. This can lead to late payment or even default, causing problems for your cash flow,” says van Wolde.
What are the negative effects of digital payments? ›
Dependence on Technology:
The reliance on technology for digital payments exposes businesses to the risk of disruptions. Technical glitches, server downtimes, or system failures can temporarily halt transactions, leading to potential financial losses for businesses and inconvenience for customers.
Why is automatic minimum payment bad? ›
Overdraft Risk: Automatic payments do have some drawbacks. If you're not carefully tracking how much you spend each month and making sure you have enough money in your account to cover your automatic payments, you could forget about a large upcoming payment and end up overdrawing your account.
What are the disadvantages of recurring payments? ›
Recurring billing does have some drawbacks
The added complexity for merchants and the risk of billing errors for customers means automated payments aren't always suitable for every company. Recurring billing can sometimes make it more difficult for customers to correct billing problems.
Advantages and Disadvantages of Automation
| Advantages of Automation | Disadvantages of Automation |
|---|
| Improved accuracy and quality | Initial implementation costs |
| Enhanced efficiency and cost savings | Technical challenges and limitations |
| Increased safety | Reduced human interaction and customer experience |
2 more rowsMay 21, 2024
Faster Payments – The Downside:
- Risk: Payments once sent, cannot be cancelled or traced – even if you realise you've paid the wrong person.
- Notification: Your operatives do not get a text message regarding their payment.
- Not guaranteed: No compensation if your Faster Payment fails to arrive.
Using autopay doesn't directly affect your credit report. However, paying bills on time is beneficial to your credit score, and using autopay can be a good way to ensure you get payments in on time.
Do automatic payments hurt your credit? ›
Automatic payments could help your credit score, but only if you time the payment to happen before the credit card's statement due date and around the same time you know there will be enough money into your bank account. Making even one late payment could ultimately hurt your credit score.
Do automatic payments save money? ›
The Bottom Line. Switching to autopay can be an easy way to save a few bucks on your bills each month. But don't discount the benefits of using autopay even if no savings are offered. It helps keep you paying all of your bills on time every month, which, more than anything, could help strengthen your credit score.
Why do people not use autopay? ›
Since you have the payments on autopay, you could miss that you were overcharged or that there was a billing issue. If you miss a billing issue, you could find yourself with a higher credit card bill, which could lead to other financial issues if you don't have the funds to cover other essential bills.
What bills should you never put on autopay? ›
Don't: Set your utility bills on autopay. Heat and water bills can clue you into how much you're really using. For example, if you have a higher water bill, that might indicate that you have a leak somewhere that's costing you a lot of money. These bills are safer to pay manually month-to-month.
Last week, we published The Pros of Automated Payments, a post which listed the benefits of making electronic bill payments.