Pros and cons of automatic payments

Automatic payments, or AutoPay, can help provide financial convenience for many people. By familiarizing yourself with what AutoPay is and how it works, you can decide if it’s right for you. If you want to set up AutoPay with State Farm® or any other online account, here are some things to consider.

What is AutoPay?

Selecting AutoPay allows merchants the authority to automatically withdraw funds from a designated account each month to cover recurring expenses. Typically used for fixed monthly bills like rent, utilities, subscriptions or loan payments, each AutoPay and automatic withdrawal depends on your agreement with the specific merchant. Some agreements may offer the option to pick a payment date and amount — either the full balance or a specific portion.

In some cases, bank customers can set up automatic payments for different merchants directly through their bank’s app or website. This can be helpful if most or all of your bills are paid from the same account and allows you to set withdrawal limits on vendor charges.

How to set up AutoPay and how does it work?

To set up AutoPay, head to the merchant’s website or mobile app and log in to your account. From there, navigate to the billing settings section and select “Set up AutoPay,” “Automatic payments” or similar. From there, merchants will often give guided instructions to initiate automatic payments. This will typically require you to have your banking information handy, including your account number, routing number and the associated email or phone number for identity verification purposes.

To set up AutoPay through your bank, log onto your account through the bank’s website or app. From there, locate the AutoPay feature in your bank’s app or website. Keep in mind that AutoPay settings for each bank may vary. Next, pick the account from which to withdraw funds for bills, date for payment, set charge limits and utilize other features such as withdrawal alerts.

What are the pros of AutoPay?

• Convenience ― setting up automatic payments can help make bill paying easier. Instead of manually paying the bill, you’re granting a merchant permission to automatically deduct the amount due from your bank account or credit card.
• Security ― if you still receive paper bills, they may contain personal and sensitive information. If someone steals a bill from your mailbox or trash, you could be at higher risk for identity fraud. Using AutoPay can help minimize this potential risk if you go paperless.
• No late fees ― with AutoPay, you can confirm that payments are made on time each month which is an important factor for improving your credit score.
• Saves money ― some companies might offer a small discount for going paperless. If you currently pay by mail, changing to AutoPay can save you money on postage and checks.
• Sustainability — switching to AutoPay replaces paper bills, which contribute to the paper industry’s 13-15% share of total wood consumption globally every year.

What are the cons of AutoPay?

• Easy to forget ― if you have all your bills on AutoPay, you might forget how much money goes out each month.
• Unexpected charges ― if you don't review your bills carefully, you may miss extra charges or increases.
• Overdraft fees ― automatic payments will be deducted from your checking account whether there's money there or not. This could mean a risk of overdraft fees from your bank.
• Fixed payments ― with AutoPay, you typically make the minimum payment or a set amount. This could make cleaning up your budget and paying down debt more difficult. To bring your balance down faster, consider adjusting the AutoPay amount or making additional payments.
• Unnecessary spending ― a downside of automatic payments is that you might lose track of how much money is being spent on services or subscriptions you may no longer use, such as gym memberships, food delivery services or even apps on your phone.
• Expired or lost credit/debit card ― when your card expires, or if lost or stolen, remember to update your accounts with your new credit card information.

Tips for using AutoPay

A few simple steps can help you be smart about AutoPay.

• Set reminders. Email or text reminders can make you aware when bills are due and help remind you to check your account balance.
• Use credit cards. This method can help avoid overdraft fees, but should only be used if you're confident you can pay your card off each month. Look into whether there will be extra charges for using credit over debit.
• Review bills. Know how much money is coming out of your budget each month and keep track of any extra charges or increases.

If you'd like to set up AutoPay with your State Farm account, visit your My Accounts portal.