Setting up automatic payments seems like an excellent way to pay your credit card bill without thinking about the due date or the amount. Using autopay can be helpful for people who struggle with making on-time payments. But you’ll need to keep a close watch on your bank account to make sure you’re covered when your payment date rolls around so you aren’t hit with any fees.
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What Is Autopay?
Autopay is when you use a bank account to automatically pay your recurring bills. 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. But you’ll be able to decide the amount you pay and when the payment will go through.
To set up autopay for your credit card bill, the most common way is to link your checking account to your credit card.
With automatic bill payment, the convenience is obvious, for both you and the credit card issuer. Issuers love it because it gives them a consistent, hassle-free way to get their payments.
[Read: Best Credit Cards.]
What Are the Types of Autopay?
When consumers set up autopay with their credit card issuer, they’ll get to choose from four autopay options. These include:
— The monthly minimum payment
— A custom amount
— The entire statement balance
— The minimum amount plus a designated additional amount
If you choose to autopay the minimum amount, you’ll avoid late fees — but it won’t stop interest from accumulating. The only option that will stop interest from adding up is using autopay for the full statement balance. And if you choose to autopay a custom amount, the outcome will depend on how much you decide to pay. Setting up multiple automatic credit card payments per month can be beneficial if you’re working on reducing your debt through smaller payments. If you choose to set up additional automatic payments, be aware that your original autopay plan will continue as scheduled.
How Do You Set up Autopay for Your Credit Card Bills?
There are multiple ways to set up autopay for your credit card payments. Some options include speaking over the phone with your credit card issuer, using the credit card’s mobile app or accessing its website. You can typically find autopay options in your card payment settings or where your payments are displayed.
When you set up autopay, you’ll need to authorize payments through your bank account for a specific date each month. This date can either occur on a day of your choosing or the credit card bill’s due date. Automatic payments will then come from the account you used for authorization. This can be canceled at any time.
Pros and Cons of Using Autopay for Credit Card Payments
Pros
— You’ll save time.
— Credit card bills will be paid on time.
— Autopay will cut down on paperwork.
Autopay is ideal if you have organized your finances, know the timing and amount of your credit card 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.
“Consumers with discipline can see exactly how much money is left for discretionary spending after all bills are paid,” says Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency. “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 credit card bill you need to pay each month, autopay can save you from missing payment dates, which can trigger late payment fees, decrease your credit score or even result in a closed account.
Cons
— You don’t have to look at your bills.
— You might overpay and not realize it.
— It can be tedious to stop payments.
— You could end up paying for fraudulent charges without noticing.
[Related:7 Signs of Credit Card Fraud]
“When accounts are put on autopay, it becomes easy to avoid giving accounts the scrutiny they deserve,” Sullivan says.
Canceling credit card payments that are on autopay could require more steps than just ending payment. You might need to call customer service, and there might be a delay before your payments stop. You may have to monitor the bank account and notify your credit card issuer if the payments continue.
Should You Pay Your Credit Card Bills 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.
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.
But 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.”
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 if your account doesn’t have overdraft protection, your bank 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.
[Read: Best Balance Transfer Credit Cards.]
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.”
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Should You Use Autopay for Your Credit Card Payments? originally appeared on usnews.com
Update 09/19/24: This story was previously published at an earlier date and has been updated with new information.
