How Autopay Can Cost You Money
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Here's your money briefing for Monday, October 9th. I'm J.R. Whalen for The Wall Street Journal. Automatic payments are a quick way to make sure your bills get paid. Just enter the numbers and forget about it. Easy, right? Problem is, people often overlook the risks.
AutoPay is really only a good option for people who have reliable income and steady spending habits because otherwise you risk spending more than you could pay off in any given month.
We'll talk with our personal finance reporter, Amani Moiz, about how to make AutoPay work for you after the break.
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AutoPay is a convenient way to pay bills, but for many consumers, it winds up costing them money. Wall Street Journal personal finance reporter Amani Moise joins me to discuss. So Amani, I've got a lot of my bills set up for AutoPay. Is that pretty typical?
What risks of automatic payments are introduced in the episode introduction?
Absolutely, especially in 2023. So Pfizer, a payment processing company, they say that almost 80% of Americans have auto pay set up for at least one of their bills. But it's a lot more common for fixed expenses like maybe your cable bill than things that fluctuate from month to month like a credit card bill.
Why has auto pay become so popular?
Because it's so easy. A lot of people don't really like to think about their bills if they can help it. So if setting up auto pay is one less thing you have to worry about, a lot of people would prefer to set it and forget it.
You mentioned people use it for cable bills and maybe sometimes credit card bills. What other types of bills do people typically use automatic payment programs for?
Well, automatic payments is really just a fancier way of saying that you're authorizing another entity to take money from your account. So if you have any type of subscription product like a magazine or a gym membership, that's already happening on a recurring basis.
Now, setting up automatic payments in advance seems like a good way to avoid missed or late payments. And yet in your reporting, you found that total fees and interest paid by credit card holders rose 19 percent from 2015 to 2020. How did that happen?
In theory, the benefit of auto pay is that it's supposed to help consumers be better about paying their bills on time so that they afford late fees. But what I found in my reporting is that people who use auto pay tend to pay a smaller percentage of their bills overall compared to when they would make manual payments. So in a situation with a credit card, if you're paying less of that balance, that means you're potentially paying more in interest.
Why would people choose to pay less?
It's all about the defaults. So when you're setting up auto pay, you're typically presented with three options. You could set it for your minimum payment, pay in full every month, or you could set a custom flat dollar amount to pay every month. Most people, they tend to stick with the two extremes since it's the easiest setting than entering your own custom amount.
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