Automatic Credit Card Payments: What You Need to Know
Setting up automatic credit card payments seems like an excellent way to pay your bills – including your credit card – without thinking about it. But you’ll need to keep a close watch on your account to avoid surprises when your payment date rolls around.
What Is Credit Card Autopay?
The most common type of credit card autopay is when you use your credit card to automatically pay your recurring bills. Your service company, such as an internet provider, charges your credit card without getting approval from you each time. The payments will show up on your account at the same time every month, and you won’t need to do anything more to continue paying them.
You can also set up autopay for your actual credit card bill. The most common way to do this is to link your checking account to your credit card.
With automatic bill payment, the convenience is obvious, for both you and the businesses you’re paying. Companies love it – and they might give you a small discount for using it – because it gives them a consistent, hassle-free way to get their payments.
“Many subscription offers, from newspapers to software to digital streaming services, require a credit card number and permission to charge,” says Mike Sullivan, personal financial consultant for Take Charge America, a national nonprofit credit counseling and debt management agency. “It has become common for many consumers to pay bills via credit card.”
There are other ways to automatically pay your credit card bill beyond linking your checking account. Sullivan says that it can be possible to pay one credit card with another, although credit card companies discourage this.
What Are the Advantages of Autopay?
Autopay has its advantages. It can:
- Save time
- Take care of bills on time
- Cut down on paperwork
Autopay is ideal if you have organized your finances, know the timing and amount of all of your regular bills, and have the income to cover them. Without autopay, you need to ensure you’re making payments by a particular date each month, which can take more time and is more prone to mistakes.
“Autopay is an excellent way to organize household finances,” Sullivan says. “Consumers with discipline can see exactly how much money is left for discretionary spending after all bills are paid. Also, there are fewer chances of error in making payments and managing funds.”
If you’re not particularly organized with your finances but have enough income to cover your charges, autopay could be a lifesaver. If you’re having trouble keeping track of every bill you need to pay each month, autopay can save you from missing payment dates, which can trigger late payment fees or suspension of service.
Autopay can stop the endless parade of envelopes that comes to your home. This is ideal for environmental reasons, and it also prevents someone from taking your personal information from the mail if you’re on vacation or if the letter is mistakenly delivered to another address. Apart from the stamps that you won’t need to buy, autopay will also save you money if a company gives you a discount for signing up for automatic payments.
What Are the Disadvantages of Autopay?
Not everything is rosy with autopay. Here are some drawbacks:
- You don’t have to look at your bills.
- You might overspend and not realize it.
- It’s tougher to stop payments.
- It’s a hassle to change credit cards.
- You might use too much of your credit line.
There are a few reasons why you can end up spending more on autopay. You might:
- Pay for something you don’t use anymore.
- Miss price increases that make the service or subscription too expensive to justify.
- Miss account mistakes that cost you money.
“When accounts are put on autopay, it becomes easy to avoid giving accounts the scrutiny they deserve,” Sullivan says. “Fraudulent charges can be missed and bad spending habits can be developed when accounts aren’t carefully monitored.”
If you want to make sure you have enough money to cover your credit card spending each month, you need to include automatic payments. Sometimes your spending might be on track, but a couple of forgotten automatic payments might throw it out of whack. The result could be that you have to carry over a balance each month, accruing finance charges until you can pay off the full amount.
Canceling a service that’s on autopay requires more steps than just ending payment. You might need to call customer service, and there might be a delay in when your payments are stopped. You’ll have to monitor the account and notify the company and/or your credit card issuer if the payments continue.
“Some consumers are so used to the recurring charges that they fail to notice they are still paying after the service has stopped,” Sullivan says.
Changing your credit card number is also a hassle. You’ll need to remember all the credit card automatic payments and individually contact each company, which can take a lot of time.
If you have a low credit limit and your automatic payments take up much of that amount each month, you are increasing your utilization rate. The credit scoring companies consider a low utilization rate – a wide gap between your credit limit and current balance – a positive factor in determining your credit score.
Also, if your ongoing balance Is too close to your credit limit because of automatic payments, it will be more difficult to use the credit card for other purchases.
Should You Pay Your Credit Card Bill With Autopay?
Making your monthly credit card payment through autopay can be an ideal way to make sure you don’t miss payments, but it can also cause problems if you don’t have enough money to cover the payment.
The most common way to autopay your credit card is through your checking account. It might be possible to pay with another credit card, but “only very disciplined consumers should even consider this,” Sullivan says.
Autopay does save time and is “particularly valuable for people who forget to do this or are just too busy,” Sullivan says. “It also saves these consumers late fees and interest charges that can be hefty.” And by ensuring you make all of your payments on time, you can potentially help your credit score, because payment history is an important consideration.
There are some major downsides to autopaying your credit card bill, says John Ulzheimer, a credit expert who previously worked at Equifax and FICO. The only real advantage to paying your credit card bill with autopay is that “you do not have to remember to pay your bill, although that’s a stretch to call that an advantage,” he says. “The real advantage is for the card issuer because they’re more likely to get paid.”
The main challenge with autopaying your bill is deciding how much to pay and then ensuring you can cover the bill. There are as many as four options you could choose for autopay on your credit card account: to cover the entire bill, to pay a designated amount per month, to just make the monthly minimum payment, or to pay the minimum plus a designated additional amount.
Since your bill will fluctuate month to month, you’ll need to make sure you have enough in your checking account to cover it. If not, you might get an overdraft charge on your checking account, plus a returned payment fee from your credit card company.
“An overdraft charge on a bank account can be as much as the late charge on a credit card payment,” Sullivan says. And an account without overdraft protection can deny the payment altogether. Sullivan recommends that “consumers should link checking accounts to savings accounts to provide for emergencies and keep an eye on balances in all accounts.” He says that autopay does not always work for consumers who live paycheck to paycheck.
Ulzheimer cautions against falling into another autopay trap: only paying the minimum balance. You’re setting yourself up for financial problems down the road.
“That’s always a possibility and a huge problem for the cardholder,” he says. “This would be gross mismanagement of your credit card account.”
A minimum payment autopay could be helpful as a fail-safe, though. You could set up an automatic minimum payment just in case you forget to review your account and make a full payment.
What Happens If You Overpay Your Credit Card Balance?
If you overpay your credit card balance, you’ll have a credit balance on the card that you can use the next statement period or receive as a refund. However, that could throw your budget off balance if the money is needed for other expenses.
There is also a potential problem if autopay does not work and you miss a credit card payment.
“Autopay isn’t infallible,” Ulzheimer says. “There are countless stories about people who depended on autopay but the autopay function didn’t actually work. To the extent people can afford to take a few minutes out of their month, the old-school approach is better.”