"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 any fraudulent activity.
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 month.
- 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