More than three-fourths of people use autopay for at least one of their bills. The percentage of credit card users who enrolled their accounts in autopay doubled from 2015 to 2020, and there’s no reason to believe it hasn’t increased even more since then. To be fair, there are some good reasons to enroll in autopay. But it isn’t the right move for everyone, and there are potential drawbacks to consider.
In this article, we’ll discuss why autopay can be a smart move, and why credit card users still might want to be cautious about enrolling.
Reasons to set your credit cards to autopay
There are some clear benefits to setting your credit cards to autopay. For one thing, it’s convenient. You won’t have to take time out of your day to log in to your credit card’s payment portal and manually schedule a payment.
You’ll also ensure that you’ll never forget to make your payment on time, assuming there is sufficient money in your checking account to cover the automatic payment. Missed credit card payments can be devastating to your credit score, so this can be a smart way to avoid the possibility entirely.
Could autopay actually cost you money?
As mentioned, enrolling your credit cards in autopay has some pretty big benefits. However, there is a big difference to keep in mind between other bills you might have on autopay, such as your cable or cellphone bills, and credit cards. While most other bills eligible for autopay are fairly consistent from month to month, credit card bills can fluctuate dramatically.
I mentioned earlier that the share of credit cards enrolled in autopay doubled in the five-year period from 2015 through 2020. Well, during that same period, the total fees and interest paid by credit card users increased by 19%, despite interest rates remaining relatively flat during that time.
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One big problem is that people on autopay tend to pay less than those who pay their bills manually. One former Consumer Financial Protection Bureau (CFPB) economist recently told The Wall Street Journal that most borrowers choose either “minimum payment” or “pay in full” when setting up autopay. And people who choose the latter often change their setting within the first 10 months, while those who choose the minimum payment tend to keep it that way, according to a 2022 National Bureau of Economic Research study. In fact, the study found that borrowers who use autopay end up paying 8% to 17% less of their balances per month compared with people who don’t enroll.
This certainly makes sense — after all, if you spend extra on your credit card and manually log in to your account, you’re more likely to pay more toward the debt since you’re actually seeing it on your screen.
In addition, it’s worth noting that if you generally don’t keep a ton of cushion in your checking account, autopay might not be for you. If you have an automatic payment returned for non-sufficient funds, you could get hit with fees from both the credit card company and your bank account. And having a rejected payment is a quick way to become flagged as a riskier borrower.
The bottom line
Autopay certainly has its convenience factors, but before you enroll, it’s important to make sure you’re paying enough on your credit card that you aren’t accumulating debt. Under no circumstances should you simply choose to autopay the minimum payment and forget about your credit card for a while.
In fact, if you can’t commit to paying your entire balance each month (like you probably do with most other auto-paid bills like utilities), credit card autopay might not be a good fit for you.
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