Saturday, March 7, 2009

Auto Debit v. Bill Pay

In my opinion, automatic debit (where the merchant takes money directly from your checking account) should be avoided. In many ways, agreeing to automatic debit is like giving the merchant a blank check. If they make a mistake, you are likely to pay a price. Despite this warning, we allow two accounts to direct debit our checking account:

  1. Student Loan – one of my loans offers a discounted interest rate for allowing the direct debit. Although I do not like it, it was a good deal and so far so good.
  2. Insurance – before I knew better, I allowed State Farm to direct debit my account. While they have not made a mistake yet, we are going to cancel monthly bill pay. As a plus, we save the monthly service fee.

We do, however, have our cable, phone, oil heat and auto insurance charges taken directly out of our cash back credit card. Why?

  1. Cash back from Amex Blue.
  2. One Bill – Instead of paying multiple bills, I take care of all of them by paying my American Express bill.
  3. Risk – in the event the merchant makes an error, our credit limit is large enough to prevent any over-limit fees. Furthermore, we should have enough savings available to take care of any mistakes.

Online Bill Pay: Using ING Direct's online bill payment system, we use a mix of automatic and manual payments to take care of our bills. Makes life easier.

  1. Fixed Payments – since our mortgage and car payment are fixed, our payments go out automatically. By automating, we do not have to remember to send anything out.
  2. Variable Payments – For the most part, they are our two credit card payments (the Amex Blue and a Gas Discount Card).

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