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Be careful shifting into automatic bill pay

Automatic bill pay is a convenient way to pay recurring bills, but the decision to use it shouldn't be automatic, too.

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These automatic payments make it easier to run up your balance on a credit card or overdraw using a debit card or bank account. Automatic payments also give you less incentive to audit your bills to make sure all the charges you're paying are yours.

And having hands other than yours reaching into your bank account or adding charges to your credit card can quickly get complicated if you don't keep a close eye on your finances.

In today's "paperless" society, consumers have the option of using prearranged automatic payments from bank accounts, debit cards and credit cards to handle anything from rent to gym memberships.

Curtis Arnold, founder of CardRatings.com, says he pays some recurring bills automatically with a credit card each month.

"There's lot of motivation for the reward points," he says. "So these recurring bills like gym membership, cell phone, any kind of deal that you're able to charge the credit card on a regular basis, they're fair game."

But the convenience has disadvantages, too, Arnold says. When you set up automatic payment arrangements, "it can be so easy and convenient that you lose tabs on the bill," he says.

So he uses the physical confirmation or bill he gets from the company as a reminder. "Make sure everything looks kosher, and file it away," Arnold says. "The convenience factor is nice, but you don't want it to be so convenient, on autopilot to such a degree, that you lose tabs on your things."

And then there are the fees. Automatic bill-paying arrangements "have become more widespread, but more often than not there will be strings attached for the privilege of doing that," he says. "So you've got to watch."

Be smart about it
With automatic payments, it's smarter to use a credit card than a debit card or bank draft that reaches right into your checking account. With a credit card, you have more protection in terms of disputes and errors. And if there is a mistake, you're challenging a bill you haven't yet paid, not trying to get your own cash returned to your account.

In addition, if you forget that an automatic bill is being deducted from your bank balance, you run the risk of overdrawing your account, being hit with overdraft fees and damaging your credit.

If you're determined to use a debit card or bank draft, ask the bank in advance what you have to do when you want to stop the automatic payments and what, if any, fees it might charge.

And remember that running up the plastic has its own dark side.

Make sure you can pay at the end of the month without running up a balance, says Jean Ann Fox, director of consumer protection for the Consumer Federation of America. If not, you're paying interest on everything you charge and that automatic "convenience" suddenly got more expensive.

-- Posted: Nov. 1, 2006
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