This is why you're broke 
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This is why you’re broke, auto pay edition

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This is why you're broke, Netflix auto debit editionLike Wile E. Coyote and those canyon walls painted to look like a wide-open road, I can never seem to stop falling into the auto pay trap.

In theory, it’s great; having monthly subscription fees automatically debited from your checking account is so convenient it’s almost invisible, especially for smaller charges. But therein lies the problem for me: Even if I never use it I’ll wait much longer to cut back or cancel a service that’s auto pay compared to one where I actually have to log on and pay by hand, or God forbid, mail in a paper check.

Confession time: I recently sent back two Netflix DVDs that had been sitting in my house for four months. Four months!

We pay $12 a month for the two-DVD plan at Netflix. That means I paid a sickening $48 to hang onto those DVDs for Netflix, and the worst part is, we only ended up watching one of them!

Think about how crazy that is for a second. If someone walked up to me in the street and said, “Hey bro, you want to pay me $48 to hold on to these old movies that you don’t even really want to watch for four months?”, I’d tell him to go to hell. But because it was auto pay, I just blissfully kept on paying for those DVDs to sit there and gather dust.

The same thing happened to me with my Xbox Live account. Now, I love video games, but I haven’t had as much time to play them lately. Because of that, I planned to cancel my Xbox Live Gold account, which costs about $8 a month, a few months ago. But wouldn’t you know it, I didn’t get around to it until I’d already auto paid for another month twice.

It’s no accident that companies often offer lower prices to those who offer to set up auto pay. Inertia — the tendency for objects at rest to stay at rest and objects in motion to stay in motion — works powerfully on humans. That’s why experts in behavioral economics say companies should automatically enroll employees in their 401(k) plans; even if they don’t care about saving for retirement, they’re unlikely to go through all the trouble of quitting the plan.

That’s a positive for people’s future retirement, but it’s also the danger of auto pay — that you’ll continue paying for something long after you no longer want or need it just because you can never quite overcome inertia and cancel it.

Sure, we’re not talking about huge sums of money here, but left unchecked, these auto pays can become like drips from a faucet, slowly adding up to buckets of cash that I could have spent on something that I actually wanted, or even better, saved for the future. That’s why I’m trying to get better about turning off auto pay when I decide I no longer want a service, instead of waiting to see that annoying charge show up on my debit card statement before following through.

What do you think? Do you ever leave an auto pay going long after you’ve stopped using a service? Or is it just me?

(Photo: Flickr user ozcast)

{ 11 comments, please add your thoughts now! }

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11 Responses to “This is why you’re broke, auto pay edition”

  1. Shirley says:

    Yes, I did… but just once! It was an insurance policy that I meant to cancel, but “didn’t get around to doing” and since then auto-pay is out for me. I may learn hard, but I learn well. :-)

  2. jestjack says:

    Good article…I got the Washington Post on a deal with a great price. I wrote the expiration date down and planned to call 2 weeks ahead to stop when the promo was up. BUT 4 weeks befor the end of the “special” I got a crazy charge to my CC…for the Washington Post. They took the ….”liberty”…to charge me for the next year…at full price…Soooo I called and told them to stop the paper BUT the nice man from Pakistan was able to continue my “special rate” for the next 6 months AND remove the old charge…It’s CRAZY…everybody is trying to get in your pocket! My advice … READ your statement…

  3. Jerry Mandel says:

    Auto pay is great. We hardly ever write a check.
    Utilities, insurances. Charges to my credit card earn air miles or hotel points.Sometimes used for minimum spending requirements to earn big air mile or hotel point bonuses. Never pay for an air ticket or a hotel. Could be used for cash back credit cards if desired.

  4. This is why I’m vigilant about my autopays and free trials. I typically set a reminder a week in advance and again a day in advance. Preferably I turn autopay off altogether.

  5. Ann says:

    I like this article because Auto Pay can be both positive and negative.
    Negative example:I forgot to cancel a service after a 7 day trial period and ended up paying a $75.00 bill because it was Auto Pay.
    Positive examples: Auto Pay on the bills gets them paid on time with no late fees and savings/retirement pays me first….always a good idea.

  6. Ann says:

    One more example of this is if you work in a place where there is a cafeteria or gift shop like a hospital. These things are auto pay and your check is less when not monitored. Easy to spend too much!!

  7. Matt says:

    I recently started autopay on a number of items, utilities, cellphone a couple of business tools. I was concerned about the very same thing, although I don’t rent movies or games, there are some things that I may no longer need and could cancel. It turns out I that I had a built in solution. I have been a mint.com subscriber for the past 5 or 6 years and refer to it on a daily basis. I found that this keeps me on top of my autopays thus giving me the ability to be aware of those autopays I want to continue and those I don’t.

  8. Carla says:

    Oh, gosh!!! The thought of not having everything set to autopay sends a shiver down my spine!!!
    In my case, I have an illness that greatly impacts my cognition and short term memory.
    I have everything that I can on autopay. (And taken out of a credit card that pays me back. The CC itself is automatically taken out of my checking account.
    The only thing I write a check for is my lawn care and wouldn’t you know it? I forgot to write them a check for the last month of service, a couple of years ago.

    I get your drift, though.

    Just yesterday, my friend finally called his landline company and dropped long distance. He only had it because they had told him years ago that if he didn’t sign up for it and needed to make a long distance call, he’d have to go to a public phone.
    In all those years, he never needed to make a single long distance call.
    $6 a month!!! For years!!!!
    He just nevr got around to dropping it, until now.

    When my brain is working, I go over all my bills, a couple times a year. I have everything cut to the bone.
    And set to autopay. It’s kind of a necessity, in my case.

    And in spite of the pressure some of the companies put on me, I refuse to go paperless!!!
    I’d be totally lost without those monthly hard copies!!!

  9. joe says:

    If you forget, & then cancel, ask, sometimes they will back date it & give you more back,, sometimes,, if you are nice

  10. joe says:

    AND,,, if it’s a trial,, use a Visa or Master card “gift card” & then use it up,, if you forget to cancel, they will cancel for you when they don’t get paid.

  11. Heater says:

    “pay $12 a month for the two-DVD plan at Netflix.” I believe there is a bigger issue at play here than auto-pay. I use Redbox and get DVD’s for less than $2 per night, of course that’s just me. I’m cheap! I believe it’a a matter of discipline. As previously noted, auto-pay can be good or bad, one just has to be on top of where the money goes!


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