Should You Set Up Autopay for Your Credit Cards?

When you have a credit card, it's crucial to make your payments on time in order to avoid late fees or damage to your credit score. Setting up autopay is one way to make sure you do that.

But, before you set up automatic payments and arrange to have money taken directly out of your checking account to pay your card bill, it's worth asking yourself a few key questions to make sure this move is right for you.

Will you set up autopay for the full balance or the minimum?

When you set up autopay, you have a choice to make. You can arrange for an automatic payment to come out that pays off your statement balance in full. Or, you can arrange to make an automatic payment that pays the minimum amount due on your card or that pays a set amount of your choosing.

If you choose to set up automatic payments for only the minimum balance, you should be aware you will have to pay interest due on any amount you don't pay off by the due date. This interest can be very expensive. The minimum payment will also do very little to actually reduce your principal balance, since so much of the payment will go to interest. You could get stuck in debt for many years if you're only paying the minimum amounts owed.

While you can go in and pay more than the minimums, one of the benefits of autopay is to avoid the hassle of having to pay your card manually. Plus, you may forget or simply opt to spend your money on other things once you feel as if you've taken care of your obligations by paying the minimum.

If you set up autopay to cover the full amount due or to pay some other set amount that's higher than your minimums, then you'll definitely be better off.

How will autopay affect your ability to keep tabs on your credit card spending?

When you have to manually go pay your credit card, you'll be forced to pay attention to what your balance is. And, when you're signing into your account to review how much is due, you'll be able to see what you spent money on.

If you have automatic payments come out of your checking account, you aren't really forced to confront your spending. It can feel like you aren't really spending money at all with this approach, which could make you less responsible with your finances.

Is there a danger of overdrafting your checking account?

There's a big risk of setting up autopay if you don't have a lot of money in your checking account. You could overdraft your account if the payment takes more money out of your account than you have in it. Overdrafting typically comes with hefty fees.

Consider whether this is a risk when setting up automatic payments. If it is, you may want to pay your card manually after making sure you have the money to do so.

Are you at risk of forgetting to make a manual payment?

Finally, there's also a risk of making a manual payment. If you forget, you could get hit with late fees and other penalties and damage your credit. And you don't want that to happen either.

By considering these four issues, you can decide if setting up autopay is something you should move ahead with or if manually paying your card is a better bet.