Streamlining Bill Payments

Automated bill payment can help you manage regular expenses efficiently, ensuring bills like utilities, mortgages, and credit cards are paid on time. Consistent, timely payments also work to improve low to moderate credit scores – not to mention avoiding late fees.

Setting up automatic payments can even lower some bills. For example, many student loan providers offer an interest rate reduction when payments are made automatically via bank draft.

Bills that are often good candidates for automatic payment include:

• Utilities such as electricity, water, heating oil, and gas.
• Rent or mortgage payments.
• Credit card bills.
• Loan repayments.
• Insurance premiums.
• Subscription services, including streaming platforms, magazines, and software.
• Membership fees for gyms and other clubs.

However, automating the payment of every bill may not make sense for everyone. Variations in bill amounts and due dates have the potential to create complications – especially for those with variable income, who are paid bi-weekly, and those struggling financially. There are strategies for dealing with some automatic payment issues. Still, it's essential to be confident that automatic payments will not result in an overdraft before setting them up.

Managing Bills That Vary

Most monthly bills are more or less consistent – there may be slight variations, but they're always in the same ballpark. But for other bills, especially credit card and utility bills with significant seasonal variation, there are strategies to consider that offer many of the benefits of full payment with less risk of an unplanned overdraft.

Credit Card Bills

For many of us, credit card bills can be highly variable. Unexpected bills, holiday shopping, and vacations can all cause the balance to grow higher than the average month. And even for those who typically spend using a debit card, a significant expense – like a car repair – could result in a credit card balance going from zero to thousands of dollars overnight.

One solution to this situation is to set up automatic minimum payments for your credit card account. While the entire bill isn't paid, the minimum payment is typically no more than a few percent of the outstanding balance or $25 to $35, thus lowering the risk of an accidental overdraft. But making the minimum payment accomplishes two important things – it avoids a late payment fee, and it prevents the damage a late payment may cause to your credit score.

Remembering to pay as much as possible to your account balance each month is essential. Otherwise, the balance can continue to grow until it's more challenging to manage. Setting up a monthly "check my balance" alert using an online calendar or your credit card company's customized alert system is a great way to get a periodic prompt to review your account.

Utility Bills

Before setting up automatic payments for utility bills, it's crucial to understand how they vary over a year. For example, those with bitterly cold winters may find their gas or electric bills increasing exponentially in winter.

Suppose it isn't possible to keep a cushion of extra money in your checking account to cover higher bills. In that case, some utility companies offer a budget billing or level payment plan, which averages your yearly usage into equal monthly payments. This option can make your utility bills a fixed expense, much easier to handle with automatic payments.  

Dealing With Due Dates

An often overlooked factor when automating bill payment is the due date of each bill – and how that compares to the date your paycheck arrives in your account. For example, if a bill payment is scheduled for the end of your pay period, the chance of an accidental overdraft increases.

To streamline payment schedules, the solution is to arrange for all your bills to be due around the same time, preferably soon after payday. When setting up automatic payments through the vendor's website or your bank or credit union's bill pay center, schedule the payment dates to align with your pay periods. If you are paid bi-weekly, arrange some payments to be withdrawn after the first period and others to be withdrawn after the second. Otherwise, schedule payments a few days after you're paid each month.