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This simple step can have several important benefits.
Key points
- Automating credit card payments can help you avoid financial consequences of a missed payment.
- You can also make money management simpler.
- Automating payments can even help you avoid interest charges.
I have a few different credit cards I use for different purposes, but every card has one thing in common. I've set up automatic payments so my card balance is paid off in full every single month.
Whether you have one card or 20, you may want to do the same. In fact, there are four good reasons why it can make a lot of sense to ensure your card payment is made automatically from your bank account every month.
1. You can avoid missed payment fees
Many credit card companies charge you a fee if you miss a payment. This can easily happen if you haven't automated the process, since life sometimes gets busy and you forget.
If you've made the process automatic, your payment will always get to where it needs to go on time so you don't have to worry about incurring added costs due to forgetfulness. If you're trying to manage multiple credit cards (perhaps to maximize the rewards you can earn) then it's even more likely a payment on one could end up slipping through the cracks, so the benefits of automation can be even greater.
2. You can protect your credit score
A missed payment on a credit card will typically be reported to the three major credit bureaus if you're at least 30 days late. This can do serious long-term damage to your credit score, since a late payment stays on your report for years and payment history is the single most important factor when your score is calculated.
By setting up automatic payments, you'll be certain your money is received by the card issuer on time every month so you don't end up with a black mark on your credit history. Developing a perfect track record of on-time payments is one of the best ways to earn a great credit score that opens up the door to affordable borrowing on other larger loans, such as a mortgage.
3. You can make sure your card is paid in full
Typically, you have a choice when you set up automatic payments. You can arrange to make the minimum payment due, to pay a set amount, or to pay off your full balance.
Ideally, you'll opt to automatically pay the full amount due every single month. This will ensure you don't end up carrying a credit card balance that comes with costly interest charges. Of course, you should do this only if you are confident you'll always have the money in your bank account to make the full payment. Otherwise, you could get stuck with overdraft fees that also damage your finances.
Even if you can't pay your balance in full, you could still set up automatic payments for more than the minimum by arranging to pay a higher fixed amount. For example, if your minimum payment is $55 but you've made a debt payoff plan that allows you to pay $100, you could automate your $100 payment each month to ensure you stick to your plan. By paying extra, you can make more progress in paying off your loan more quickly.
4. You can simplify your financial life
Finally, by setting up automatic payments, you can cross this task off your to-do list and you won't have to worry about sending in your payment each month. Automating as much of your financial life as possible -- including credit card payments and savings -- can free up your time to do other things that are more fun.
For each of these reasons, you should seriously consider setting up automatic payments on your cards ASAP if you haven't already.
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4 Reasons to Automate Your Credit Card Payments - The Motley Fool
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