Credit card auto-pay is widely heralded as a best practice in the personal finance world for those looking to avoid credit card late fees, interest payments, and negative impacts on your credit profile. “Never miss a payment!” just sounds so darn responsible, doesn’t it?
As such, you may find it a bit surprising that I don’t use credit card auto-pay. Never have. And probably never will. And I would recommend that you not use auto-pay either.
1. Auto-Pay can Lead to Financial Ignorance & Apathy
Budgeting can be a bit overrated (I don’t budget anymore), given fixed costs and the unpredictability of one-off expenses, but you should definitely be aware of where all of your dollars are going and any noteworthy spending trends. When you auto-pay, you’re robbing yourself of that close awareness of your financial activity and the knowledge that comes from that. That can lead to financial ignorance, and even apathy. And those are a direct path to lifestyle creep and personal inflation.
What you spend should be something that you closely monitor. And it should also hurt a little bit. Seeing those costs added up with each monthly statement and documented over the year… hurts. And that accountability prevents ignorance and apathy. I think this is the biggest benefit to manually paying your credit cards.
2. Auto-Pay Increases your Risk of Fraudulent Transactions
Banks lose over $24 billion annually to credit card fraud. And that’s just a fraction of the total spent in fraudulent transactions, from the tens of millions of credit card numbers stolen per year. If you’re not checking every spent line item in your monthly credit card statements, how are you supposed to notice fraudulent transactions that you didn’t make and dispute them?
Sure, I guess you could go in on a regular basis and review statements, while being on auto-pay. Or, even more reliably, you could just regularly review those statements when you manually pay. ;-)
3. Auto-Pay can Result in Cash Flow Issues & Overdraft Fees
As noted earlier, the main benefit of credit card auto-pay is the reliable automated payment function, which can prevent credit card late fees, interest charges, and negative hits to your credit reports and scores. BUT, automated payments only work if you have cash in your bank account. If you don’t, you could be subject to not only those late fees and interest charges, but potentially bank overdraft fees on top of them.
I personally have a high net worth, but a very low balance in my bank checking account, due to the fact that the interest on checking accounts these days is close to zero. Typically, once per month, I will need to move cash between financial accounts in order to pay off my balances on my credit card spend. Auto-pay circumvents this essential cash flow management process.
How to Manually Stay on Top of Credit Card Payments, without Credit Card Auto-Pay
It would be irresponsible for me to recommend ditching auto-pay without giving you a legit alternative. Here is the system that I personally use:
- If you have multiple credit cards, change your credit card due dates to the same day each month. This makes the errand easier to bear by combining the completion of multiple tasks in one session, including cash flow management and paying off all cards. You only need to do this 1 time.
- Put a recurring monthly reminder on your calendar, including an email alert. If you’ve set your card issuer to send statement alerts for you, this is already done. Again, you only need to do this once.
- Document your payments for each card, each month. When you make a payment and get a payment confirmation (happens instantly with many providers) jot down that total paid for each card, each month. Only put the total in when paid. This allows you to double check that you’ve made your payments for that card for that month. It also has the benefit of summing up what you’ve paid over the course of the year and from one year to the next. I’ve added a simple version of the spreadsheet I use to the 2nd tab of the free budgeting spreadsheet I’ve shared with readers previously. Each credit card has it’s own row and each month has its own column.
Using this simple system, I avoid all of the negative effects and risks of auto-pay, while gaining the benefits of manual pay. And it only takes 10-15 minutes each month. I’ve only ever missed one card payment in the many years I’ve been using it (user error, but the card issuer wiped out the late fee).
Credit Card Auto-Pay Discussion:
- Do you use credit card auto-pay? Why or why not?
- If you manually pay, what is your system to avoid late fees?
I agree with the comments regarding autopay resulting in becoming more removed from the awareness that reviewing your bills in detail provides. However, I use autopay combined with YNAB to monitor the expenses in more detail – without having to worry about missing payments. I end up using YNAB more for monitoring than true budgeting, but it’s an effective way that my wife and I can stay on the same page regarding upcoming expenses.
I use autopay to avoid late fees, and there was a time when I found myself not looking at the statements as you said would happen. However, I solved that problem now now by signing up for paper statements. It’s a lot easier to overlook an email than a paper statement. I also signed up to receive text message alerts for each and every transaction on my credit cards. This way I catch fraud the minute it happens (and it has happened).
1) Totally agree with the text message alerts for every transaction. Worth it.
2) I personally like to pay down my credit card balance multiple times per month as I watch and monitor it (in addition to having the monthly alert to pay before it’s due). I don’t know if this is truly a good habit or just something that I’ve picked up over the years, but it makes sure I have made my “minimum payment” for the month and keeps my debt balance lower thus increasing my debt-to-credit ratio and credit score! Other thoughts?
For me, I don’t recommend this credit card auto-pay because of the security issues like identity thief and fraud transactions.
My friend had his credit card on auto-pay, yeah…
He ended up finding a $2000 charge that he never knew about, payed it, and never got it back!
I completely agree with you. I use auto payment. Automatic payment of bills. You give an order to the bank once, and at the time you set (daily, weekly, monthly, quarterly), the necessary amount will be debited from your company account to pay for services and make repeated identical payments. You can choose one type of service. for example, a regular payment with a fixed amount is suitable for paying off credit debt, replenishing a mobile phone or Internet charge. You yourself determine the amount of payment, and it does not change throughout the time for which the service is issued. Good luck.
I almost never use auto pay in general if it is an option. This started a few years ago when I found surprise recurring charges and it was a nightmare to get them to stop. With auto pay psychologically it is just too easy to detach and lose awareness of your spending.
I actually work for a credit card company. My strategy for payments is simple. I make it a habit to pay off the current balance on all my credit cards every weekend after looking over the recent charges. There is no limit to how many times you make payments on credit cards so why wait for the bill? Worst case I’d have to forget 4 weekends in a row to miss a payment (pretty unlikely if it’s a habit).