March 30, 2022

What is Autopay?

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Learn how autopay works, how to use it safely, and 5 bills you should never pay using autopay in this quick and easy guide.

Autopay makes covering your bills easy, convenient, and could even increase your credit score.

But using autopay with the wrong companies could end up costing you money.

So how does autopay work? And which bills is it best for?

Learn everything you need to know about autopay in this guide.

What is Autopay?

Autopay, or "automated debit payment", is a common service where money is automatically deducted from your bank account to pay bills. It can be used with any bank or credit account, including checking, savings, money market, or credit cards.

Autopay is usually processed two days before the bill's due date each month, so the payment goes through on the actual due date.

It's a convenient option that helps you avoid late fees because you'll never miss a payment.

This service is ideal for monthly recurring payments that are the same amount each month, such as rent, car insurance, and student loans.

What's the Difference Between Autopay and Scheduled Payments?

Autopay and scheduled payments are both scheduled ahead of time to be paid (likely on the due date).

The difference is that scheduled payments are usually one-time occurrences, whereas autopay is taken out of your account every month on a recurring basis.

What's the Difference Between Autopay and Bill Pay?

Bill pay, usually offered by banks, is very similar in practice to autopay. But there's an important difference.

With autopay, you give a company permission to access your bank so they can automatically charge your account each month. With bill pay, you give your bank permission to pay a company each month.

Same result. Different process.

How Does Autopay Work?

With autopay, you give a company specific banking details (i.e., your routing number and your account number) so they can automatically charge your account each month for your bill.

Automatic debit payments will usually start to process two days before the scheduled due date in order to post by said due date (more on this below).

One important drawback of autopay: The payment will always go through regardless of the funds available in your account. This could result in expensive overdraft fees from your bank or credit union if you don't have enough money to cover the bill.

How to Set Up Autopay

Setting up autopay is simple. Once you complete this process, you no longer have to worry about paying bills on time

Step 1: Sign Up for Autopay with the Company
Log into your account with whichever company you want to enroll in automatic payments for. You may need to provide or confirm your basic account information, such as your name, address, and contact info.

Step 2: Provide the Company with Your Banking Information
Next, locate your bank's routing number and the account number for the account you want the funds withdrawn from.

You can find this information at the bottom of a personal check (for checking accounts), online, or by calling your financial institution.

By providing your bank information, you are providing the company with permission to make automatic withdrawals from your account each month.

Step 3: Set Autopay Amount and Date
Next, choose when you would like the funds debited from your account. For example, you can choose the first or last day of the month, on the bill due date, or on a certain date, such as a day after you get paid.

For some accounts (like credit cards) you can also choose whether to pay off the bill in full or make the minimum payment. To avoid interest charges, you should ideally be paying off your bills in full each month.

Is Autopay Safe?

Yes, autopay is a safe practice and carries no more inherent risks than other types of payment.

However, because you are providing the company with your bank account info, some additional safety steps should be taken.

  1. Verify the company: Never provide your bank account information to a company you do not fully trust. Check with watchdog institutions like Trustpilot, the Better Business Bureau, or the International Corporation for Assigned Names and Numbers (ICANN) to ensure the validity of the company in question.

  2. Do your homework: Always review the terms and conditions before signing up for autopay.

  3. Set up notifications: Sign up for electronic notifications via email, SMS, or push notifications to receive activity alerts. This can provide you with advance warning if the company plans to charge you more than you expect.

Can You Cancel Autopay?

Yes. In fact, it's usually easier to cancel autopay than it is to sign up. In most cases, simply log into your account, select the billing option, select autopay, and deselect the autopay option.

Some businesses — such as gyms — notoriously make it difficult to cancel your membership. Always make sure to read the terms and conditions when you sign up for any service so you know how to cancel.

When Should I Cancel Autopay?
If you are canceling a service you no longer use and want to make sure you are not charged for the following month, make sure to cancel automatic payments at least three days in advance of your due date. This is because automatic payments are usually processed two days before the due date so that they can post on time.

5 Bills You Should NOT Use Autopay For

Autopay is convenient, secure, and can even help to improve your credit score over time. However, not all bills should be paid with autopay.

There are two primary situations when autopay is not appropriate: First, if the amount changes widely month-to-month, and second, if you don't use the services regularly.

Here are five examples.

  1. Utility Bill
    Charges for heat, electricity, and hot water can change drastically based on the time of year. It's better to set up payment reminders on your calendar and pay these bills manually to avoid potential overdraft fees or surprises.

  2. Subscription Box Services
    Subscription boxes are extremely popular. You pay a flat rate each month and receive a box of goodies. The problem with these services is that many people end up not using most of the products that are shipped to them.

    By making payments manually, you'll be forced to evaluate every month whether the service is really worth it. Autopay makes it too easy to forget about payments you're making, and you might be spending money for services you don't use.

  3. Cell Phone Bill
    This one depends on your situation. If you have unlimited data, talk, and text and pay a flat amount every month (and there are no price increases in your contract), it is perfectly acceptable to use autopay for your cell phone bill.

    However, if you don't have unlimited everything and your bill fluctuates monthly, it is best to treat this bill in a similar fashion to your utility bill.

  4. Gym Membership
    Yes, gyms usually charge a flat rate every month. But unless you are an extreme fitness enthusiast, it's common to keep a gym membership for years without ever visiting the fitness center.

    As a side note, avoid signing up for a gym that requires you to sign an annual contract. If you don't end up going to the gym regularly, you're in the hole for a decent chunk of money.

  5. Streaming Services
    Most people are signed up for some variety of subscription streaming services like Hulu, Disney+, Amazon Prime Video, Netflix, and Peacock.

    These services usually cost somewhere between $6.99 and $19.99 per month, which can seem insignificant. However, due to the fact that the average American is subscribed to 3.4 streaming services, these costs can quickly add up.

    Much like subscription box services, paying for streaming services manually can help you evaluate whether it's really worth it to continue paying for them.

    Perhaps you signed up for a streaming service using a free trial to watch one movie, but forgot to cancel it before the trial ended. Or maybe you used to use Hulu all the time to watch Seinfeld, but no longer need it after the classic comedy switched to Netflix.

    Whatever the reason, streaming services are a great place to cut your monthly expenses.

The Bottom Line

Automatic debit payments make it easy to pay bills by permitting companies to automatically withdraw your monthly payment from your checking, saving, money market, or credit card account.

Use autopay for recurring payments that stay the same each month, and always remember to be diligent before providing your bank account information to any company.

Looking for additional ways to save money? Here are 100+ ways to save.

Write to Justin Barnard at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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