Recently on our legal forum a user asked, “I filed for bankruptcy last year and I just received my discharge. I really want to clean up my credit and try to increase my credit score. I know one option for paying my bills is automatic debit payments. I am wondering if this is a good idea?”
Whether it’s utility bills, credit card bills, monthly fees for childcare, gym fees, or car payments, automatic debit payments may be one good way to eliminate late payments. They can also save you time and money and may even generate extra benefits, such as earning discounts or rewards from the company in question.
Choosing to make your bill payments in this fashion, however, can also cause problems, especially if you decide you would like to cancel the service or stop the automatic payments.
What are automatic debit payments?
First before deciding to use automatic debit payments you need to understand the process. For example, unlike online bill payment systems where you have given the bank permission to send a payment to the vendor at a specified time each month, automatic debit payments allow the creditor or business to take money out of your account or to make an authorized charge against your credit card.
Downsides of automatic debit payments
To set up the automatic debit payments you will have to provide legal authorization for the company to access your credit card or bank account, and you will also have to provide them with your account information.
If you are not sure about the validity of the company providing this information can be one of the greatest downsides to using this service. Other downsides include the following:
- Insufficient funds- Users who decide to use automatic debit payments may fail to track their account activity, potentially leading to insufficient fund charges.
- Potential hidden fees- Some companies may decide to charge fees for this service.
- More difficult to track monthly bills- Users may lose track of what bills are automatically paid.
- Difficult to stop payments- Different companies may have different terms for terminating the automatic debit transactions. Other companies may fail to eliminate the service even when the proper steps for termination are followed.
- Increased credit card balances- Having charges consistently charged with little thought or attention can quickly add hundreds of thousands of dollars onto a consumer’s credit card.
Final warning for using automatic debit payments
Although many consumers benefit from automatic debit payments, if you decide to use this service the most important first step is to thoroughly read the terms of the agreement. Next, if you decide to use the service, make sure you understand how often and what amount will be withdrawn or charged. Finally, make sure you understand how to terminate the payments.
Automatic debit payments may be one good way to ensure your bills are paid on time, but many consumers have found the downsides outweigh the benefits. Before going this route, look into other options such as online bill payment which is offered by most banks.
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