Beating Broke

Personal Finance from the Broke Perspective

4 Dangers of Using Automatic Bill Pay

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Many people love the convenience of having their bills paid automatically each month with no effort on their part.  Like many, these people probably have about a million and one other things they’d rather be doing than taking time to pay their bills.  However, there are 4 dangers of using automatic bill pay that people should consider carefully.

dangers using auto bill pay

4 Dangers of Using Automatic Bill Pay

If you have already set up automatic bill pay or you’re considering doing so, first consider these potential pitfalls:

Vulnerable to Hackers

dangers automatic bill pay

If you have your information stored in the company’s server, which you’ll have to do if you sign up for automatic pay, that information is vulnerable to hackers.   The more places you have your information stored, the more vulnerable you are.

Vulnerable to Overcharges

Occasionally, the company that is collecting your money automatically will have a computer error and collect too much.  Steve Hawkins shared with Kiplinger’s, “My sister’s auto-pay electric bill somehow got an extra zero added to it.  It took her a week to get the money back in the account, and she still had to pay for the bounced checks out of her own pocket.”

Vulnerable to Overdrafts

If you live on a fairly tight budget, you may set yourself up for overdrafts if you use automatic bill pay.  Variable bills such as electric, water, and gas may be more than you budgeted for.

For instance, our neighbor has all of her accounts on auto pay.  One month, her water bill was $500 instead of the usual $80 per month.  She had a water leak that she was not aware of, which was why her bill was so high.  She did not have an extra $420 in her account to cover the difference, so she bounced payments to several other companies and had to pay overdraft fees.

Vulnerable to Continued Charges

Do you really want a company to have unlimited access to your checking account and routing numbers?   They could pull money out of your account any time they want.  (Of course, that is illegal, but that does not stop some companies.)

Dick Novack told Kiplinger’s, “My horror story is that a national company restarted debiting my account eight months after the contract was over.  It took a change of my credit card number to get it to stop.  Now I’m in court trying to get a year of debits back.”

Final Thoughts

True, electronic bill pay is convenient, which is why so many people use it.  However, I never want to give a company unlimited access to my checking and routing number.  Instead, I pay the bill online each month, initiating the payment myself so the company does not have unlimited access and my account information is not stored on their server.

While many people swear by automatic bill pay, avoiding it may be the smarter choice.  There are just too many risks.

Do you use automatic bill pay?  If so, have you had any trouble doing so?  Do you monitor your account each month to make sure your being charged correctly?  If you don’t use automatic bill pay, what are your main reasons for avoiding automatic bill pay?

4 Ways to Make Sure Your Bills Get Paid On Time

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You’re busy.  I get it.  I’m busy, too, and sometimes I forget to sit down and pay my bills in a timely manner.  However, I don’t want a ding to my credit score.  Because I’m so busy with my kids and their many activities, and L.I.F.E., I use several strategies to make sure my bills get paid on time.

Here are some of my favorite strategies:

Set e-mail reminders.

For each of my credit cards, I have set up e-mail reminders.  Depending on the company, I’m sent an e-mail reminder six to 10 days before my payment is due.  I can’t tell you how many times these e-mail reminders have meant the difference between a late and on-time payment.  Everyone should set e-mail reminders for their bills, in my opinion, especially if you have a very busy schedule.

Set up recurring payments to your credit card.

While I generally avoid setting up recurring payments to my checking account, I do advocate setting up recurring payments to credit cards.  Why?  If a charge is fraudulently applied to your credit card, the credit card company protects you.  If the same thing happens to your checking account, your entire account could be emptied, and then you would miss other payments to other creditors and have to pay for bounced checks.

In addition, if you have a credit card with a rewards program, you could gain rewards simply for paying your monthly bills that you used to pay via check and snail mail.  Those points can add up quickly when you’re paying your monthly recurring bills with credit cards.  Just make sure to pay off your credit card each month.

Set up a special account for automatic payments from your savings or checking.

If you still prefer to set up automatic payments to your bank account, I’d suggest setting up a separate account just for automatic payments.  Then, if there is an error on the vendor’s part, you don’t risk paying overdraft fees on your regular checking account.

I have one account that is devoted solely to automatic payments for my husband’s student loans and our life insurance (the only two payments I have set to auto pay from our bank account).  These are both fixed expenses, so at the beginning of every month, I just schedule a transfer to that account so the payments can be deducted.  Since I don’t use this account for any other purpose, there is no worry about not being able to make other payments or bouncing checks.

Keep all of your bills in one place.

If you’re still receiving bills in the mail rather than electronically, keep all of your bills in one place.  If you use snail mail, also keep stamps there.  Then, when you’re ready to sit down to pay your bills, you have everything you need right in one place.

What are your strategies to make sure your bills get paid on time?  What suggestions would you add to this list?

Are We Too Confident in the Stock Market?

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Experts are fond of telling us all about the historic returns of the stock market. But, does our belief in that make us overconfident in the stock market?

You’ll have a hard time finding someone who won’t tell you that the market performs quite admirably over time.  It may have it’s ups and downs, but it performs at a rate that touches on double digits for longer periods of time.  And, it’s hard to argue with the facts.  Take the market for any given 10 or so year period and you aren’t likely to find too many periods where it hasn’t returned a pretty nice rate.  Especially when you compare it to the rates of savings accounts and CDs over the same period.

But, there’s  shady side to all of that.  Our confidence in the ability of the stock market to return those kinds of numbers can sometimes cause us to over-invest our portfolios.  Every time the stock market drops significantly (or crashes altogether) we hear stories about the person who was near retirement and now has to work for another 10 years because he/she lost it all in the stock market drop.  Invariably, you hear one of the reporters utter something about whether the stock market is as safe as we all make it out to be.

Charging BullAnd the truth is, no.  It’s nowhere near as safe as some would make it out to be.  In fact, it’s down-right risky.  And the less diversification you have, the riskier it becomes.  Hold all your money, or a significant portion of your portfolio, in one stock and you’re just as likely to suffer a tragic loss than you are to retire rich.  Ignore the more conservative professionals who suggest that you should move more and more of your money away from stocks and into something like bonds as you age, and you have a much higher chance of suffering a tragic loss.

Our confidence isn’t entirely misplaced, however. The facts remain that the market does return a healthy rate over time. Alongside traditional investments, exploring alternative investment strategies can also add value to your portfolio. While stocks and bonds play a crucial role, diversifying into different financial instruments ensures a balanced approach to investing, mitigating risks associated with market volatility. As long as you can weather a few down trends, you’re likely to come out on top if you just hold on for the ride. The overconfidence comes when you keep your money in too high of a percentage of stocks as you near retirement age. By the time you are 10-15 years from retirement (about age 50-55) you should have moved at least 50% of your portfolio away from stocks and into bonds. Your investment adviser should be able to help you with that, or you should sign up with a stock advisor service (like the Motley Fool Stock Advisor, or Betterment).  When you’re 5 or so years from retirement, you should be closer to 90% in bonds and other safer investments.  Yes, these investments are less likely to have high returns, but they also are almost guaranteed to return something.  And, as the old saying goes, something is better than nothing.

The bottom line is this.  Be aware of the risk of the stock market and that you should begin playing it safer as you near retirement age and you should be ok.  Don’t get overconfident in the history of the stock market and it’s giant returns.  Most importantly, find an investment adviser that you can trust and, at the very least, get their advice on your portfolio and it’s allocations, and you should find yourself hitting retirement with most of the money you expected to be there.

Image Credit: Charging Bull by kdinuraj, on Flickr

This post originally appeared on Beating Broke on 10/25/2010, and has been refreshed.