Paying bills is a task that most people dread. With many
companies, such as utilities and cell phone companies offering a
monthly automatic credit card billing option, it can be tempting to
sign up for this service. But while we are all looking to save time
and hassle, is this actually a smart financial move?
Bigger benefits than just saving time
One of the most obvious benefits is that automatic payments save
time because you do not have to sit down and manually pay your
bills each month. But actually, the most important benefit is that
setting up autopayments can help
increase your credit score
if you have the bad habit of occasionally pay bills late.
"If you pay bills late, even utilities and cell phones, then
these late payments get reported to the credit bureaus which lower
your credit score," says
, Independent credit card expert and consumer advocate. "By setting
up automatic payments, your bills are paid on time, and you don't
miss any payments because you are traveling or forgot."
For those of us who play the credit card rewards game, automatic
payments can be a great way to earn additional rewards points or
frequent flier miles. By using your credit card with the highest
rewards benefits for autopayments, you will most likely earn the
plane ticket, hotel stay or experience that you are coveting even
But what are the downsides?
As with most things that offer a convenience, there are several
disadvantages to setting up autopayments that you should be aware
of before signing up.
The adage "out of sight, out of mind" is often very true when it
comes to paying your bills. Many people forget about the
autopayments that they have signed up for until they open their
credit card statement to find their balance is much higher than
"When you set up an autopayment, you often feel emotionally
disconnected from the amount you are spending, and it is easy to
get lulled into a sense of security that your bills are paid for,"
Harzog says. Since any benefits of autopayments are wiped out if
you carry a balance on your card and pay interest, she recommends
carefully reconciling your budget with the autopayments to make
sure you are not spending more than you can pay off each month.
When you pay your bills manually, you most likely check through
the bill to make sure that each payment is for the correct amount
and that the company did not overcharge you. When you set up an
automatic payment, it is much easier for you to not notice a
mistake on the company's end and be overcharged. If you are not
paying close attention to the bill, you could also be unaware of
Each time you go over your credit limit, many credit cards will
charge you an overdraft fee. If the card you have set up for
autopayment is close to the limit, then you may find yourself
paying additional fees and possibly negatively impacting your
credit score by having a high balance. "Any time you are close to
your credit limit on a credit card, your credit score can go down,
which can be an issue if you are applying for a loan or refinancing
your home," Harzog says.
Getting the most from autopayment
After considering both sides, if you decide that automatic
payment is the best decision for your financial situation, use
these tips to get the most out of the service:
- Verify that there is not a fee to use the automatic payment
service with the company.
- Use the credit card with the highest rewards points value for
the type of rewards you want to earn.
- Include the amount of your autopayments in your monthly
budget, and make sure you can pay off your credit card each
- Set a specific time each month to review the charges you paid
through autopayments and dispute any incorrect bills.
- Get copies of your credit report each year to ensure that you
have not been a victim of identity theft
Automatic payments may allow you to worry less about missing due
dates, but they still require regular review to ensure you remain
in control of your finances. Click
to read about a few of CardRatings.com's favorite credit cards.