Autopay by credit card: how to do it right

If you’ve ever run into late fees and credit damage because a due date went out of your head or you were just busy, you might want to consider setting up automatic bill and credit card payments.

Autopay can help streamline your finances, especially when you’re distracted by other events in your life, says Patty Cathy, founder of Smart Retirement, a financial planning company.

“Automatic payments are a very useful tool,” she says.

What is autopay by credit card?

Autopay is an easy way to pay your credit card bill. You set it up by logging into your online account and allowing the issuing company to debit your bank account on a set date each month.

All major credit card companies, including American Express, Bank of America, Capital One, Chase, and Discover, offer this bill payment option.

Benefits of using auto pay

But is autopay a good idea? There are pros and cons to using automatic payments to pay your credit card bills on time each month. In general, autopay is a good idea and can even help you build or maintain a good credit score if you use it wisely and review your arrangements regularly.

According to Cathy, the biggest benefit of credit card autopay is that it can help you avoid late payments, which can result in you getting both a hefty late fee and a higher interest rate. These late payments also end up on your credit reports and can have a significant impact on your credit as your payment history is the most important factor in your credit score.

Another plus is that paying automatically saves you time and effort, says Nick Clements, founder of MagnifyMoney.com, a personal finance website.

Cons of using auto pay

However, auto-payment also has its downsides. First, you transfer some of the control of your account to the credit card issuer. Plus, auto-pay makes it easy to get careless about managing your accounts if you “set it and forget it,” says Clements.

If you’ve already set up auto-pay and you’re one of the many Americans experiencing financial stress due to the coronavirus pandemic, be sure to check out auto-pay arrangements.

If you can no longer pay your set amount, you can temporarily turn off auto-pay or reduce your payment amount. If you are unable to make the minimum payment, contact your credit card issuer for assistance. Most issuers have created coronavirus relief credit card options to help cardholders experiencing financial hardship due to the pandemic.

If you haven’t set up autopay yet and want to do so, read on to learn how autopay works and how to use it wisely.

How to set up auto payment: 3 options

How do I set up auto pay with a credit card? It’s simple. Simply log into your account, click on the Payments tab, and choose the option to set up automatic or recurring payments.

You can choose the amount you pay each month as long as you make at least the minimum payment. Credit card companies usually offer some combination of these three autopay options:

1. Pay the minimum amount

Setting an automatic payment of at least the minimum amount due is a good safety measure if you’re worried you might forget to pay your bill but fear the total amount due will be automatically debited from your bank account, says Craig Roper, Sr. Vice President and Chief Depository of the Bank of Utah.

The downside is carrying over a large balance and not being able to supplement those small automatic minimum payments. Without regular additional payments, “you could end up in debt for 25 years and pay absurd interest,” says Clements.

2. Pay the full balance

Clements says setting up automatic payments for a full balance is the best bet if you use your card for day-to-day expenses to earn rewards.

If you go down this path, it’s smart to make sure your bank account is full so that an extra purchase or debit transaction on the wrong day doesn’t trigger overdraft fees, which can also include a chargeback fee from your card, says Roper.

And, if you think you’ll ever use a credit card to fund an emergency purchase you’ll want to pay off over time, carry a second low-interest card with you just for that purpose, says Clements. On that card, it was possible to set up auto payment only for the minimum payment.

This way you will avoid the scenario where you charge for example an expensive new refrigerator, forget that you have automatic payment set for the entire balance, and then get a nasty surprise when the total amount is deducted from your bank account.

3. Pay a fixed amount

Setting a recurring payment to a fixed amount above your minimum payment can be a good strategy if you’ve built up a balance, stopped shopping with that card, and are working on paying off debt, Clements says.

Automatic monthly debiting of a set amount from your account “can really help you pay off that debt,” he says.

If you’d rather have more control over your payment, you can achieve the same goal by using online bill payment through a bank where you have a checking account, says Roper.

But if you go that route, there’s a small chance you could experience a delay or failure because your bank, not your credit card issuer, initiates the transaction, he says.

To make sure the minimum payment is paid on time, you can set up auto-pay for the minimum payment through your credit card issuer 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 pros of autopay outweigh the cons for you, use these tips to avoid crashes and surprises:

Read the fine print

Yes, we know that you are used to ignoring conditions and jumping straight into action. Don’t do it this time. Review the auto-pay terms and conditions that should appear upon registration to learn how the process works.

Select the date your payment will be deducted

Consider your spending and income habits when setting your due date. If the monthly payment comes from a checking account, it can have peaks and valleys as paychecks come and go. Strive for the peak. Many card issuers adjust the due date so you can match them up.

Decide what to pay

Have a strategy based on your goals and your habits. View a few recent credit card bills. What is the maximum amount you spent in a month? Use our minimum payment calculator to find out what the payment will be for this amount and make sure that this amount is always available.

Then decide what you are trying to do. If you’re just forgetful or busy and money is tight, you want to use auto payments as support, so just make the minimum payment. If you are rolling over debt, set a fixed amount that you can afford.

And if your card charges are never high enough to hurt your bank account, set it up to pay the full amount.

Find out what happens if you add a prepaid payment

Generally, if you have only the minimum amount set up for automatic payment and you manually pay that amount or more before the automatic payment processing date, the automatic payment will fail. The same is true if you have a recurring payment set for your total balance and you pay it early.

“You don’t have to worry about double diving,” says Clements.

Check with your bank to be sure.

Set up alerts

It is recommended to combine auto-pay with alerts to help you keep track of your account.

Consider setting up an alert to let you know every time a charge is made that exceeds a certain amount, say $200 or whatever the maximum amount you normally spend, so you can dispute the fraudulent charge and withdraw it from your account before any automatic payment. done, Clements recommends.

Also, set an alert to remind you when a payment is due and another one to let you know when it’s posted, he says. As a backup, mark your due date on your digital or paper calendars.

Always check your statements

Don’t use automatic payments as an excuse to stop actively managing your finances.

Even if you have alerts set up, Clements says it’s important to review your statement monthly to make sure everything looks okay before you start making automatic payments.

It’s also a good idea to set an alert on your calendar to check your automatic payments regularly. And be sure to revise your auto-pay arrangements every time your financial situation changes—for example, if you lose your job or experience a sudden change in income, as has happened to many Americans recently due to COVID-19. If you have auto-pay set up to pay for your entire card balance, you may need to temporarily switch to paying a lower amount as an emergency temporary measure.

Following these steps will allow you to avoid the “set it and forget it” approach that can backfire on autopay.

“You can enjoy the convenience of auto-pay, but still be in charge of your account,” says Clements.

bottom line

Setting up auto-pay to process monthly credit card statements is very easy and is available from most major issuers. Whether you want to cover your minimum payment so you don’t miss it at all, or you’re just looking for the added convenience of not having to manually pay the balance in full every month, make sure you keep an eye on your bills to avoid slipping into debt or fraudulent payments. .