Autopay Is Making Us Worse at Managing Credit-Card Bills

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Setting up automatic payments is the easiest way to manage your credit-card bills. It is also costing many consumers money. By setting up automatic payments, or autopay, you authorize companies to pull money directly from your checking account to settle recurring bills. It has been a standard feature for fixed expenses, such as cable, for more than a decade and is becoming more popular for bills that fluctuate from month to month, like credit cards.

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In theory, higher autopay enrollment should lead to reduced credit-card fees since customers who sign up for automated payments are less likely to forget to pay and thus can avoid late fees and interest charges. Yet the total fees and interest paid by cardholders rose 19% to around $240 billion from 2015 to 2020, according to federal data.

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When credit-card customers sign up for autopay, they typically have three options for monthly payments: the required minimum, the statement balance in full or a custom amount. Most people who enroll in autopay choose either the minimum payment or full balance, said Wang. Those who pick “pay in full” when they set up their automatic payments are more likely to change their settings within the first 10 months since this option is less affordable in the long term, her 2022 study for the National Bureau of Economic Research suggests. Those who pick “minimum payment” tend to keep that setting.

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The only surefire way to avoid fees and interest charges with autopay is to pay off your balance in full. But that only works for people with reliable income and steady spending habits. Overdraft fees can offset any savings from late fees if you spend more on your credit card than you have in your checking account. You can avoid overdrafts by scheduling your automatic payments on days you are paid instead of using the default statement date, Wang said.

There is also value in paying your bill the old-school way, manually, according to financial advisers. Actively managing your account helps you stay on top of your spending and spot any fraudulent charges.

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