Financial Resource Center

Money Management

Be Careful with Automated Payments

by Carrie Anton / December 8th, 2020

If you can't afford a personal assistant, but your life is busy enough to warrant one, then automatic payments can be a blessing. By simply preauthorizing payments with a company that provides you a service, like your cable or mortgage provider, can save a lot of hassle. However, if you don’t fully understand how payments will be made, it can also wreak havoc on your budget.

Preauthorized plans

Automatic payment plans allow you to authorize your financial institution to schedule a bill payment to a company at a specified time. Although it’s a helpful time saver, it can lead to a "set it and forget it" mindset of banking. For example, consider variable rate charges, such as electric bills or minute-charging smartphone plans where one month's bill can be $75 and the next month $250. If you’re not keeping track of the amounts being withdrawn, your checking account could go into deficit. And those times when you're mischarged for services? Companies could be making out with more cash—by accident or not—from customers who go on autopilot.

Here's how to avoid mishaps:

  • Take control—Sign up for online bill payment services through your credit union. The convenience is similar to preauthorizing payments, but you keep the control instead of handing it over to another company.
  • Be alert—Use your credit union’s banking alert system. Get notification anytime a payment exceeds a certain amount, when your account is below a certain amount, etc. 
  • Set it straight—Only use autopay for bills with set amounts, such as your mortgage, car payment, or insurance premiums. You won't avoid the risk of wrongful charges, but accurate charges won't catch you by surprise.

The fine print

Closely read contracts you sign—and pay attention to the terms and conditions you agree to, usually by clicking a checkbox. Autorenewal clauses often are hidden. 

Other “gray” charges may be lurking as well. Some companies include legal fees that can catch many consumers by surprise. Companies know that people are busy and don't have time to read every page of the disclosure agreement. Also be aware of "cost creep." This is when you sign up for a monthly subscription or service for a certain amount, but the cost increases a small amount each month. You may not realize it because the company doesn't advertise the monthly increase, but it's in the fine print. Avoid unwanted charges by following these steps:

  • Read now or pay later—Whenever you're providing payment for a service, read the contract or terms and conditions in full. It might seem easier to just sign or click to agree and move on but doing so could cost you time and money in the long run.
  • Turn it off—Memberships for dating sites, game boxes, and security software all come with auto renewals built in. Before you forget to cancel, head to account settings to turn the renewal option off.
  • Make contact—If there are gray charges or auto renewal clauses in the terms of service, talk to the company before agreeing to anything. If you can't escape the conditions, walk away or accept the consequences.

Dealing with autopay problems

If you've had your fill of payment issues, terminate your contract. Sometimes it may be difficult, especially with cellphone services. If you have a good reason to cancel early, call first and find out what documentation is required. If the problem is inadequate service, you should also call and explain your reasoning. Try these steps to get out of an agreement:

  • Ask nicely—Call the service provider to cancel your contract. If applicable, include reasons to support the cancelation request. You might not escape for free, but a small upfront fee could save you payments for months to come.
  • See what the state says—Laws in your state could help you out of your contract. For example, Illinois allows a three-day "cooling off" period for consumers to cancel some transactions. Check the state's right to cancel policies to see what services apply.

In the end, if you have a contract for a service you don't like, you may have to wait it out. Just be sure to give notice of your desire to cancel before you get caught again in an autorenewal loop.


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