Auto-Paying Bills by Credit Card: How to Reduce the Hassle

Paying recurring bills by credit card is the easiest thing in the world — until it isn’t. Just ask John McCarron, who pays many of his bills this way to save time and earn rewards.

“It just ruins your day, if not your weekend, when you get that call … that your card’s been hacked,” says McCarron, a contributing columnist for the Chicago Tribune, who wrote a column about his experience. “You have to go one by one to all your auto-payees, to their website, and change your [credit card] number.”

Despite those headaches, McCarron still favors credit cards for recurring expenses. It’s easy to see why, since the benefits usually outweigh the drawbacks. Auto-paying bills by credit card is smooth sailing about 99% of the time; the other 1% of the time, it can be a real doozy. But by centralizing payment information, monitoring fees and canceling unneeded service subscriptions, you can enjoy the best things about this payment method while avoiding the worst.

» MORE: Used a credit card for free trials? These tools make canceling easier

Paying by credit card has advantages

Automatic payments don’t have to be made by credit card, but often that’s the best option for:

• Rewards. Some cards offer as much as 5% back for purchases in certain categories. Debit cards and checking accounts don’t offer such perks.

• More time to pay. Credit cards offer a way to float purchases interest-free for about a month after the billing cycle ends. Debit cards take money out of your checking account almost immediately.

• Security. Credit cards give you time to recognize and dispute billing errors and fraudulent charges before they drain your bank account. You’ll also get zero-liability protection from your payment network and protection under federal law. Debit cards are protected to a lesser extent. If a fraudulent charge on a debit card goes unreported for more than 60 days, you likely won’t see that money again.

There are also benefits to paying bills automatically, whatever the method:

• Discounts. For example, several cell phone plans offer $5 discounts each month if you sign up for automatic payments.

• Time saved. There’s no need to write a check to every payee each month. Plus, you’ll save on postage.

• Protection from late payments. You generally won’t have to worry about getting service cut off or incurring a late fee because of a forgotten payment.

But before you “set it and forget it,” make a plan for managing the potential pitfalls.

Updating card information can be tedious

Giving a service provider a credit card number for automatic payments isn’t a one-and-done deal. You’re responsible for updating your card information when it changes.

And, yes, it will change — even if your credit card preferences don’t. The expiration date will arrive. The card might get hacked.

For McCarron, it took a full workday to transfer payments to other cards. Even then, he didn’t remember to update the payment information for his quarterly car insurance bill until the insurance company sent a failed payment notice.

“My insurance didn’t expire, but it would have if I hadn’t caught that,” he says.

How to make it work

Today, there’s no perfect, high-tech solution for managing automatic payments for credit cards. But a low-tech fix can help.

First, it helps to manage all your recurring payments in one place. Get a “just for bills” credit card, and keep it for these expenses. Next, make a list of all your recurring credit card payments. When it’s time to update your payment information, this reference could make your job a little easier.

Convenience fees are common

You can pay almost any bill with a credit card these days. But in some cases, it might cost more.

Many utility companies that accept credit card payments also charge convenience fees, according to data from Chartwell Inc., an information provider for the utilities industry focusing on gas, water and electric service.

“Most of the time, it’s just a flat fee, which averages $1 to $2 and is processed through a third-party such as Western Union, KUBRA or BillMatrix,” says Will Adams, a senior industry analyst at Chartwell. These fees generally apply to debit card payments as well.

It’s also not uncommon to see 2% and 3% convenience fees on private school or university bills or homeowner association fees when paying by credit card.

How to make it work

If your utility company allows automatic payments by credit card, consider the cost. Say you owe a $1.50 fee on a $100 bill, and pay with a 2% cash-back card. You’d still come out ahead in rewards, as long as you paid in full every month. If the fee is $5, though, consider automatic withdrawals from a checking account instead.

Quitting subscriptions can be hard

Not too long ago, discontinuing a subscription was easy: You’d just ignore a company’s entreaties to “Renew today and save!” Nowadays, auto-renewal policies and automatic credit card payments make it easy to hold onto subscriptions long after you need them.

Canceling an unneeded service — and stopping the charges — will take some effort on your part. Sometimes, there’s no way to cancel online, and you have to talk to a salesperson on the phone. (Ugh!)

But when trimming the fat from your budget, eliminating these dead-weight expenses is important.

How to make it work

Try an app like Clarity Money or Trim to help you identify and cancel recurring bills automatically. Or do the job yourself, either online or by phone.

Set up your credit card account so it sends you text or email alerts for all your credit card purchases. These notifications can give you a mental nudge to curb spending, even when you’re flying on financial autopilot. After all, automatic payments by credit card should help you save money — not spend more.