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Here's your Money Briefing for Monday, October 9th.

0:22

I'm J.R. Whalen for The Wall Street Journal. Automatic

0:27

payments are a quick way to make sure your bills

0:29

get paid. Just enter the numbers and

0:31

forget about it. Easy, right? Problem

0:34

is, people often overlook the risks.

0:37

Auto pay is really only a good option

0:39

for people who have reliable income and

0:41

steady spending habits. Because otherwise,

0:44

you risk spending more than you could pay off in any

0:46

given month.

0:46

We'll talk with our personal finance reporter,

0:49

Amani Moiz, about how to make auto

0:51

pay work for you. After the break.

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you. Visit IHG.com to

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learn more.

1:37

Auto pay is a convenient way to pay bills.

1:40

But for many consumers, it winds up costing

1:42

them money. Wall Street Journal personal

1:44

finance reporter, Amani Moiz, joins me

1:46

to discuss. So Amani, I've

1:49

got a lot of my bills set up for auto pay. Is

1:51

that pretty typical?

1:52

Absolutely, especially in 2023. So

1:55

Pfizer, a payment processing company,

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they say that almost

1:59

80% of Americans have

2:02

auto pay set up for at least one of their bills,

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but it's a lot more common for fixed expenses

2:07

like maybe your cable bill

2:09

than things that fluctuate

2:10

from month to month like a credit card bill.

2:13

Why has auto pay become so popular?

2:15

Because it's so easy. A lot of people

2:18

don't really like to think about their

2:20

bills if they can help it. So if setting

2:23

up auto pay is one less thing you have to

2:25

worry about, a lot of people would prefer to set

2:27

it and forget it.

2:28

You mentioned people use it for cable bills

2:30

and maybe sometimes credit card bills. What

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other types of bills do people typically use automatic

2:35

payment programs for?

2:37

Well, automatic payments is

2:39

really just a fancier way

2:41

of saying that you're authorizing another

2:43

entity to take money from your account. So

2:46

if you have any type of subscription product like

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a magazine or a gym membership, that's already

2:51

happening on a recurring basis.

2:53

Now setting up automatic payments in advance

2:55

seems like a good way to avoid missed

2:57

or late payments and yet in your reporting,

3:00

you found that total fees and interest

3:03

paid by credit card holders rose 19% from 2015

3:05

to 2020.

3:07

How

3:09

did that happen?

3:10

In theory, the benefit of auto pay

3:12

is that it's supposed to help consumers be better

3:15

about paying their bills on time so that they afford

3:17

late fees. But what I found in my reporting

3:19

is that people who use auto pay tend

3:21

to pay a smaller percentage of

3:24

their bills overall compared

3:26

to when they would make manual payments. So

3:28

in a situation with a credit card, if you're

3:31

paying less of that balance, that means you're potentially

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paying more in interest.

3:34

Why would people choose to pay less?

3:36

It's all about the default. So when

3:39

you're setting up auto pay, you're typically presented

3:41

with three options. You could set it for

3:43

your minimum payment, pay in full

3:45

every month, or you could set a custom

3:48

flat dollar amount to pay every month. Most

3:51

people, they tend to stick

3:53

with the tube extreme since it's the easiest

3:55

setting than entering your own custom amount. But

3:58

when someone selects paying full they're more

4:00

likely to change their setting over time because

4:03

that's not always affordable. When people

4:05

select minimum payment, they tend to keep

4:07

that setting. And since it's automated,

4:09

meaning they don't have to worry about it, they're less likely

4:12

to go back, pay their bill, and make additional

4:14

payments so that they're not just making the minimum

4:16

payment.

4:17

That minimum payment option you mentioned may

4:19

be more affordable, but

4:20

now the consumer is on the hook for interest as

4:22

well, right?

4:23

Yes. When you're making a minimum payment, you're typically

4:26

paying a lot more in interest because the

4:28

way that the requirements are

4:30

set up, they're different from account

4:33

to account depending on where you get your credit card from.

4:35

But that minimum payment typically only represents like 2%

4:39

of your overall bill. That's not very

4:41

much, and that's not, it's not

4:43

a really good way to get out of debt if that's

4:45

your goal. So let's say I sign up for auto

4:47

pay somewhere. Does that have an effect on my

4:49

credit score?

4:49

Not directly. It can

4:52

benefit your score if it helps

4:54

you avoid mispayments because not missing

4:56

payments makes up a good percentage of your score. But

4:59

signing up for auto pay by itself doesn't

5:01

necessarily have an impact on your

5:04

score.

5:04

But what happens if someone's enrolled in auto pay,

5:07

but when the payment day comes and

5:09

they have insufficient funds in their bank

5:11

account?

5:12

So if you don't have an overdraft

5:14

protection set up, then that

5:16

payment will be rejected. So

5:19

an issuer will typically try

5:21

that payment twice, maybe a few

5:23

days apart to give you a chance to transfer

5:25

some money. But after two returned payments,

5:28

they tend to just unenroll that customer

5:30

from auto pay. Being unenrolled

5:33

doesn't have a direct impact on your credit score

5:35

because that's not reported to the bureaus. However,

5:38

your lender is probably going to be taking a closer

5:41

look at your account because now they

5:43

think that you're potentially a riskier customer.

5:45

And that means that maybe they're less likely

5:48

to extend you more credit if you apply

5:50

for it, or they could even reduce your credit

5:52

limit.

5:53

And that could affect credit card applications, mortgages,

5:56

and things like that down the line?

5:57

Yes, because if you have a low...

5:59

limit than your credit utilization

6:02

usually goes up and that has a direct

6:04

impact on your credit score. So there's some

6:06

responsibility here with the consumer

6:08

to manage their spending.

6:09

Financial advisors say that auto-pay is really

6:11

only a good option for people who have reliable

6:14

income and steady spending habits because

6:16

otherwise you risk spending more than you could pay

6:18

off in any given month and then you're facing

6:21

potential overdraft fees or return payments

6:23

and late fees and that quickly can

6:25

offset any savings that you'll have

6:27

from auto-pay and potentially

6:30

create more headaches for you to deal with when auto-pay

6:32

was supposed to make your life easier.

6:34

What other risks with auto-pay should people be

6:36

aware of?

6:37

More broadly than just credit cards, you

6:39

want to make sure that you're keeping tabs on

6:41

all of the automatic payments that you have set up

6:44

just to make sure that you don't end up paying for

6:46

things that you no longer need. For example,

6:48

a gym membership in a city that you no longer

6:50

live in or maybe you're paying

6:53

for a magazine that you no longer read. Regularly

6:56

checking your statements is a good way to keep

6:58

tabs on what payments are coming out

7:00

and if you see something that shouldn't be there you should call

7:02

your bank right away.

7:03

So how do credit experts say people should approach

7:06

auto-pay so it doesn't cost them

7:08

money or appear risky to banks?

7:10

The best option if you can afford it is to

7:13

set your auto-pay to pay off in

7:15

full. Now if you don't trust yourself and

7:17

there's a risk that you'll overspend one

7:19

month, what you should do is set

7:22

your own mental limit and set an

7:24

auto-pay to match that limit. So say that's

7:26

going to restrict yourself to spending $500 on

7:28

your credit card a month, set your auto-pay to $500.

7:32

Another strategy that you can try is

7:34

to schedule your auto-pay

7:36

days to match up with your income.

7:39

So on the days that you receive your paycheck that

7:41

way you know for a fact that money is going to be

7:43

in your account and you're not at risk of spending

7:45

it before that auto-pay gets triggered. Lastly,

7:48

financial advisors say there's also value in just

7:51

doing things the old-school way. So setting

7:53

up reminders and paying your balance yourself, that

7:56

way you have a dedicated time to check

7:58

over your statement every month, review your finances

8:01

and look for any fraudulent charges.

8:30

You