For the most part, setting up preauthorized payments for your bills is a good idea. It’s convenient, and it ensures that your bills will be paid on time. When life gets busy you don’t have to worry about remembering to pay your bills.
However, there is another side to preauthorized payments that you need to consider. If you are on a tight budget – living from paycheck to paycheck, you may not find preauthorized payments helpful. Why? Because if you suddenly realize you cannot afford to have the payment deduct from your bank account, you will have to go through the hassle of contacting your payee and they often need at least 2 weeks notice in order to cancel a payment. You can often place a stop payment on the item through your financial institution but it will cost you. So, if you really don’t know from month to month if you will have enough to pay your bills, I wouldn’t recommend setting up preauthorized payments.
Preauthorized payments are good for people who know they’ll have enough to pay their bills, and who don’t want to be bothered with having to pay them manually each month. They are also a great way to tuck away money for retirement. Set up a preauthorized payment into your retirement savings account on pay day and you won’t miss the funds.
If you do use preauthorized payments, be sure to use an account that always carries enough funds so that you don’t ever get caught off guard. You don’t want to be stuck paying hefty NSF (nonsufficient fund fees) to your financial institution.