4 Reasons Autopay is Bad for Your Financial Health

While automatic payment can save you time, it can also cost you money. A set-it-and-forget-it approach to paying your bills might sound like a win for your financial health, but autopay comes with its fair share of risks. When used wisely, autopay can save you time and prevent problems like late fees, but it can also cause you to be too careless with your bills.

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This doesn’t mean you should never use autopay, but you should consider your financial situation and habits. For example, if you live paycheck to paycheck, using automatic payment can lead to an overdraft if you forget about an upcoming withdrawal.

Whether it’s credit card payments, utilities, streaming subscriptions, etc., consider the following ways autopay can potentially be bad for your financial health.

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1. You can lose track of your expenses

One problem with automatic payment is that it creates an out-of-sight, out-of-mind dynamic. There’s a reason so many services charge a monthly subscription. If you had to pull out your credit card or enter your bank details for every purchase, you might think twice about whether you really want to go ahead with it. Yet when the bill is automatically charged, you may continue to rack up expenses without giving them much thought.

Consider that about 8% of customers cancel subscriptions when they’re actively asked to renew, compared to roughly 2% who cancel their subscriptions in other months, according to NPR.

The same dynamic can happen with automatic payment. Even if autopay doesn’t cause you to overdraft, you may not realize how much you’re spending, or you may just see the main amount instead of viewing specific charges.

2. You could accrue interest

With credit card accounts, autopay can be especially risky if you set autopay for less than your full statement balance. Paying a little more than the minimum on an auto payment may seem like a good way to pay down debt, but if you’re not actively looking at those payments, you may not realize how much you’re still incurring interest charges along the way. If you had more visibility, you might decide to pay off your card faster or even pay the balance in full.

Yet on average, automatic payment for credit cards reduces the average balance payment by $25-$48, according to a study by Jialan Wang of the University of Illinois at Urbana-Champaign and the National Bureau of Economic Research (NBER). If you’re not careful, this could mean paying more interest in the long run.

3. You may miss billing fraud/errors

Another risk with autopay is that you get so used to these fees happening automatically that you don’t think to look at them carefully. This can lead to issues such as missed fraud or billing errors. For example, if your credit card is set to pay automatically, you may not review your transactions and miss a fraudulent charge. Or, a subscription service may have charged you twice due to a billing error, and you may not have been looking at your statements closely enough to realize it.

4. You may miss opportunities to save

Finally, paying automatically can cause you to miss out on opportunities to save money.

For example, your mobile phone service provider may have changed their price levels but kept your old auto-pay price. Or maybe you’re used to making automatic payments on your car loan every month; however, changing interest rates or improving your credit score may allow you to refinance and lower your monthly payment.

However, if you’ve been strictly using automatic payment and never checked your accounts or given it much thought, you may be missing out on these types of opportunities.

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In general, automatic payment can be a convenient feature, but it can also cause you to take your eye off the ball. You may miss issues like overspending, interest, fraud, billing errors, and other money-saving opportunities. Even if automatic payment is required, such as for a subscription service, consider logging into your account periodically to reduce the chances of these types of issues happening to you.

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This article originally appeared on GOBankingRates.com: 4 Reasons Autopay is Bad for Your Financial Health

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