There are many ways to pay bills, but some pose greater risks to consumers than others.
I was reminded of this when a friend's checking account got hijacked. Apparently, overseas scammers gained access to his account information because he used a debit card to pay charges on a video game system account.
Next thing he knew, money had vanished from his account at a credit union, and because that account no longer contained the funds it should have, my friend was hit with multiple overdraft fees. To make matters worse, he was told he would have to pay additional fees to block some regularly scheduled Automated Clearing House (ACH) transactions that would have further overdrawn his account.
There are a whole lot of cautionary lessons in that tale.
First, it's important to understand that, unlike a credit card, a debit card is a doorway to your bank account.
And unlike a credit card, which by federal law caps your risk of fraudulent charges at $50, debit cards offer less protection, and fraudulent debit card charges can trigger a cascade of expensive bank fees.
There are lots of ways that fraudsters can get hold of your financial information. If you have the choice of using a debit or a credit card for online and Internet-related purchases, you gain a little bit of safety by choosing the credit card. Of course, you'll have to pay the bill in full when it's due to avoid interest charges.
Second, there can be pitfalls associated with allowing creditors to make ACH withdrawals from your bank account.
Often, a business will ask if you'd like to set up an ACH withdrawal to pay your bills. This allows the business, such as a utility or credit-card company, to directly withdraw funds from your bank or credit union account for a payment.
People also can receive ACH deposits, that's what happens if your paycheck, tax refund or Social Security payment is direct-deposited. Of course, giving someone permission to put money in your account is different from allowing them to take money out.
The risk with setting up ACH withdrawals is twofold. Again, you're creating a doorway to your bank account.
First, a company could make a mistake and withdraw the wrong amount. This appears to happen rarely, but if an ACH withdrawal takes too much money out, you might not find out until you start bouncing checks and get hit with bank fees.
Second, if you have a problem, such as the one my friend had, and suddenly there's not enough money in an account to cover scheduled ACH withdrawals, many banks and credit unions will hit you with a fee to stop each one of the payments. It might be $30 or more for each payment you need to stop.
The reason some people set up ACH withdrawals for bills they regularly pay is to make sure bills get paid on time, avoid having to write checks and avoid late payment fees.
There's another way to do that without giving companies access to your accounts and without risking stop-payment fees.
Many banks and credit unions now offer free online bill paying from a checking account.
You decide who to pay, how much and when, and you generally can cancel any scheduled payment without a fee so long as it's not already being processed.