Something happened to me this past weekend that hasn't happened in years. I have been drafted...or rather, overdrafted. It wasn't as the result of anything I did, but it still cost me several hundred dollars.
It all started a few weeks ago, when my wife agreed to pay one of our creditors a lump-sum payment to clear a bill. She had been paying the bill with a direct debit from our checking account. She made an arrangement to pay off the rest of the bill with a lump-sum payment, and the creditor agreed to wait until the middle of the month, the next time I get paid. They didn't.
I'm sure you know what's coming. The creditor wanted their money sooner rather than later, and emptied my checking account. What's worse, the checks we used to pay the bills prior to this withdrawal all bounced.
Of course, I was more than a little irritated this happened. Ever since I started working to clear up my family's finances about six years ago, I haven't experienced a legitimate overdraft charge. Now, one simple snafu cost me in the neighborhood of $500. Luckily, I had the money to cover the overdrafts and set things right with my checking account again. However, this brings up some important points about dealing with creditors.
Get it in writing. If you make a payment arrangement with a creditor, get it in writing. Oral agreements won't hold up in a dispute with a creditor, and they can (and most likely will) break them.
Don't give creditors your bank info. There is a difference between automatic bill pay through your bank and handing over the routing and account numbers to your checking account. With these numbers, a creditor can withdraw any amount they want, leaving you holding the (empty) bag.
Pay your own way. If a creditor tries to force you into handing over your bank account info, don't do it. Tell them you will send a check or call on a certain date to give them a credit card number, but do NOT give a creditor the information they can use to drain your bank account.
Even though you are trying to do the right thing by paying off your bills in full, there is a right way and a wrong way to go about doing it. Doing it the right way can save you time, headaches and most importantly, your hard-earned money.
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I am so sorry this happened to you. I really don't know how those collection agents who do this type of thing can sleep at night.
Question: Even if you pay with a check, can't they do the same thing with the info on the bottom of the check? The bank routing number and the account number are all on the check. Would people be better off paying with a money order?
Sure, creditors could also get your bank's info that way, but the thinking is if you are actually sending them a check the money is already in the account. They can only cash a check once. If a creditor actually pulls the info from the check and tries to run other charges, that would be fraud. In this case, my wife signed up for "e-check" to pay this bill from the very beginning, so the creditor had the routing number and account number, and they were authorized to electronically debit.
I used to pay my rent and other bills with money orders back when my finances were a complete mess and I couldn't use my checking account (years ago). However, I got into a dispute with a creditor and couldn't prove I had already paid them because I didn't have the receipts from the money orders.
Yes, I've had this lovely experience, too. And I learned the same thing: never allow any kind of "auto-pay" or other access to your accounts. Insurance companies seem very prone to abusing this access; taking huge amounts of your cash and, when you catch them doing it, offer to refund it "next month", which is usually 60-90 days. Guess I was lucky: it only cost me $200 to learn this lesson.