"Autopay Is Making Us Worse at Managing Credit-Card Bills" - Imani Moise

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Many people set up automatic payments, sometimes without being fully aware or even forgetting about the purchases that they continue to make constantly. For example, purchasing a Netflix subscription is an automatic payment, as it renews your payment monthly, usually without notifying you, making it more easily forgettable. These automatic purchases are costing credit users a significant amount of money albeit apparently ‘making it easier to manage their credit card bills’.

How Autopay Affects Your Financial Health

The process of setting up autopay, whether it's through a subscription or not, authorizes the company you purchase from to take money directly from your checking account and continue to do so for future recurring bills. Although historically autopay was used primarily for stationary expenses for services like cable, they are now being used for services that vary in price from month to month, such as credit card bills. Since 2015, the amount of people using these services have doubled – Fiserve vice president of digital payments Derek Swords states that approximately 3-fourths of the population uses it for at least one fee.

The rise in automatic payments has also correlated to a 20% increase in the amount of total fees and interest people pay as a result. Associate professor of finance at the University of Illinois Urbana-Champaign Jialan Wang, in a study, found that consumers underpay their credit card balances, approximately 17% less than they should. The smaller payments lead to higher interest rates, ultimately canceling out and outweighing the benefit of avoiding late fees.

The Bank's Perspective: Why Autopay is a Win-Win

Autopayments are also more beneficial to banks as they aren’t losing as much. Synchrony Financial credit officer Max Axler says that customers using auto,ayoc payments are half as risky to missing their payments. He believes auto pay is beneficial as it helps avoid late fees and makes the payments more reliable for the banks. However, when someone, before they pay a payment in full, is unenrolled from an auto payment or does not have sufficient funds for a recurring payment, it is alarming to the banks as illegal behavior. These things will not impact your credit score, but rather make you less trustworthy with your bank. Approximately 0.3% of auto payments are stopped by banks illuminating how these types of subscriptions are not for everyone.

Finding Balance: Managing Autopay Effectively

The solution to not having enough funds for autopay is paying your balance in full, which can be achieved through a reliable income and not overspending. For those that don’t, these fees may cut into their savings funds which ultimately will significantly harm their financial security. Wang recommends that people set up their payments for the same day as they are paid so as to avoid the bill cutting into money reserved for savings. Wang also recommends for those that struggle with autopay to just use manual payments and renew them monthly to make them more aware.

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Sources

Moise, Imani. “Autopay Is Making Us Worse at Managing Credit-Card Bills.” The Wall Street Journal, Dow Jones & Company, 7 Oct. 2023, www.wsj.com/personal-finance/autopay-money-management-credit-cards-c546b62c.