The good and not so good of automatic payments

Withdrawing cash from ATMs without using a card, paying for essential services without stepping into a bank desk or branch, and depositing checks using your cell phone are just three of the many benefits that come with digital banking.

For many, the most progressive step is not worrying about whether your insurance premium, mortgage, home internet, or car was paid on time, especially during times of stress, such as a move or separation, such as a vacation. For this, you can use Set up automatic payments and debitswhose pros and cons are presented below.

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Positives

1. Automatic payments help achieve savings or investment goals, because Auto payments are not used to pay off debts or bills. Setting up frequent transfers to savings or investment accounts fosters the habit of “paying yourself first”as practice is known in the world of personal finance.

2. They contribute to maintaining or improving a credit score. Credit agency Experian states that “Late payments can cause credit damage that can remain on your credit report for up to seven yearsThe risk of forgetfulness affecting credit is minimized by setting monthly mortgage, insurance, car loan, or minimum credit card payments days before they are due.

3. One less thing to think about.

4. Can be a key to interest rate cuts. Financial institutions also benefit from automatic debits. Therefore, in many cases, they offer a more attractive interest rate to customers who accept this payment method. Auto loan and student loan companies typically offer a 0.25% reduction, but more aggressive offers of 0.50% or 0.75% can be seen.

cons

1. It is crucial to maintain a daily balance that will comfortably allow you to cover the payments due each month as well as living expenses.. This point becomes crucial if personal or family income has fluctuated or has not been deposited by specified dates.

Experian warns, “If there isn’t enough money in your bank account to process the payment, you may face an insufficient funds fee from your bank and a bounced payment fee from the company that attempted to debit.” To reduce this possibility, many checking accounts allow you to sign an overdraft or reserve a pre-authorization for use. but Be warned: even if the discount is processed anyway, the customer usually has to exchange the amount and pay an overdraft fee.

2. With the peace of mind of automatic payments, there is a risk of forgetting the importance of reviewing invoices or invoices received. For this reason, the bank and card issuer recommend “setting up a calendar reminder to check the status of your credit card near the automatic payment due date, and to make adjustments to the payment amount or when it is due, if necessary.” in the same line, Failure to check statements regularly may result in lost charges or fraudulent payments for subscriptions and services that are no longer used.

3. Mistakes happen. What if the phone company mistakenly deducts your monthly payment twice, or your cable provider adds a zero to your balance and you get $850 instead of $85? These errors can happen, although they are rare, and fixing them takes time and effort.”, warns the specialized site Nerd Wallet.

It can also happen that after the loan has been repaid, the cooperative or the bank does not deactivate direct debit in time, unsuitable additional payments are deducted and the customer has to contact the institution or company that received the payment for a refund.

4. Some businesses, such as gyms and telecom companies, make it difficult for a consumer to cancel an auto-debit payment method. The Federal Consumer Financial Protection Bureau (CFPB) has a Guide in Spanish around How to stop these payments and rights that help consumers in these scenarios.