Credit card bill autopayments: tips for getting it right
Award-winning writer covering consumer and small-business credit cards.
If you ever got hit with a late fee and credit score damage because a due date slipped your mind while traveling or just got busy with life in general, you might want to consider setting up automatic bill and credit card payments.
“Automatic payments are a very useful tool,” says Patty Cathey, an investment adviser with Smart Retirement Plan, a financial planning company in Denver.
They can help streamline your finances, especially when you are being distracted by other events going on in your life.
Most major credit card companies offer the option to set up automatic payments, in which you sign up online and agree to allow the card company to debit your payment from your bank account on a set date each month.
The biggest benefit of the autopay option for credit cards is that it can help you avoid late payments, which can cause you to get hit with both a hefty late fee and a higher penalty interest rate, Cathey says. In addition, those late payments can end up on your credit reports and damage your credit if they are more than 30 days past due.
Another plus is that paying automatically saves you time and effort, says Nick Clements, a former banker in the credit card industry and founder of the personal finance site MagnifyMoney.com.
However, autopay can have its downsides. First, you cede some control of your account to the credit card company. Also, autopay makes it easy to become lax about managing your accounts if you “set it and forget it,” Clements says.
Autopay's 3 options
If you have a credit card with a major issuer, it should be fairly easy to set up automatic payments by logging into your account, clicking on the payment tab, and choosing the option to set up automatic or recurring payments, Clements says.
Credit card companies offer some combination of these three autopay options:
Pay the minimum due.
Setting an automatic payment of at least the minimum amount due is a good safety measure if you worry you might forget to pay a bill, but are leery of having the total balance due automatically deducted from your bank account, says Craig Roper, senior vice president and chief deposit officer for Bank of Utah.
The downside is rolling over a large balance and failing to supplement those small automatic minimum payments. Without regular additional payments, “You could end up in debt for 25 years and pay ridiculous amounts of interest,” Clements says.
Pay the full balance.
Setting automatic payments for the full balance is the best choice if you use your card for routine spending to rack up rewards, Clements says.
If you go this route, it’s smart to make sure your bank account is flush so an extra purchase or debit transaction on the wrong day doesn’t trigger overdraft charges, which could also include a return payment fee from your card company, Roper says. “You could get double dinged,” he says.
And, if you think there’s a chance you’ll ever use a credit card to finance an emergency purchase that you’ll want to pay off over time, carry a second card that has a low interest rate just for that purpose, Clements says. On that card, you could set up autopay for only the minimum payment.
That way, you’ll avoid a scenario where you charge, for example, pricy plane tickets to visit a sick relative, forget you have autopay set for the whole balance, then get a nasty surprise when the total gets deducted from your bank account.
Pay a fixed amount.
Setting a recurring payment of a fixed amount larger than your minimum payment can be a good strategy if you’ve racked up a balance, stopped making purchases on that card and are working on paying down the debt, Clements says. Having a set amount automatically come out of your account each month “can really help you get that debt paid down,” he says.
If your card issuer doesn’t offer this option, you could accomplish the same goal by using online bill pay through the bank where you have your checking account, Roper says. But if you go that route, there’s a small chance you could experience a delay or glitch because your bank, rather than your credit card company, is initiating the transaction, he says.
To make sure the minimum gets paid on time, you could set up autopay for the minimum payment through your credit card company and set up an additional recurring payment of a set monthly amount through your bank, Clements says.
Tips to make autopay work for you
If the pluses of autopay outweigh the minuses for you, use these tips to avoid glitches and surprises:
Read the fine print.
Yeah, we know, you’re used to blowing past the terms and conditions and jumping straight into the process. Don’t do it this time. Read the autopay terms and conditions, which should pop up when you’re signing up, for details on how the process works.
Choose the date your payment will be deducted.
Consider your spending and income habits when setting up your due date. If the monthly payment is coming out if a checking account, it can have peaks and valleys, as paychecks come and go. Aim for a peak. Many card issuers will adjust your due date, so you may be able to time them together.
Decide what to pay.
Have a strategy, based on your goals and your habits. Review the last several credit card bills. What’s the most you’ve spent in a month? Use our minimum payment calculator to see what the payment for that amount would be, and make sure that amount will always be available.
Then, decide what you're trying to do. If you’re just forgetful or busy and money is tight, you want to use autopayments as a backstop, so just use the minimum. If you’re rolling over debt, set it to pay a fixed amount as high as you can afford.
And if your card spending is never high enough to put a dent in your bank account, set it to pay the full amount.
Learn what happens if you add a manual payment.
In general, if you’ve got autopay set to pay only the minimum and you pay that amount or more manually before the automatic payment processing date, the autopay won’t go through. The same holds true if you have a recurring payment set for your full balance, and you pay it early.
“You shouldn’t have to worry about double-dipping,” Clements says. Check your bank to be sure.
Set up alerts.
It’s a good idea to pair autopay with alerts to help you keep an eye on your account.
Consider setting up an alert to let you know any time a charge is made that’s over a certain amount, say $200 or whatever is the maximum you normally spend, so you can dispute a fraudulent charge and have it taken off your bill before any automatic payment is made, Clements recommends.
Also, set an alert to remind you when a payment is due and another to let you know when it posts, he says. As a backup, mark the due date in your digital or paper calendars.
Always scour your statements.
Don’t use automatic payments as an excuse to check out of actively managing your finances.
Even if you have alerts set up, it’s still crucial to review your statement every month to make sure everything looks OK before your automatic payment processes, Clements says.
“You can enjoy the convenience of autopay, but still take responsibility for your account,” he says.
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