Autopay Ends Credit Card Late Fees
Credit card companies usually set small-dollar minimum payments, so there’s really no excuse for incurring fees for late card payments.
Yet many consumers fail to pay on time. In a new study, British researchers found a no-brainer solution that is highly effective: setting up automatic payments of our credit cards.
The researchers started out with a different premise: that customers might learn, over time, to prevent maddening late fees after having to pay them numerous times. The researchers roundly rejected this after following nearly 250,000 U.K. credit card holders over two years. When it comes to late fees, we do not learn from our mistakes.
What they noticed, however, was a clear distinction between card holders who incur late fees regularly and those who don’t or who stopped incurring the fees. Setting up autopay “all but eliminates the likelihood of future [late] fees,” while the probability remains “persistently high” (about one in five) among people who did not, they said.
Further, a seemingly obvious explanation for chronic late fees didn’t hold water: that people don’t have the cash to make their minimum payments. Payers of late fees “do not appear to be liquidity constrained,” the study found. Apparently, most people simply forget to pay those pesky credit card bills.
Consumers have various options for automating their payments, either through their bank or card issuer. In one method, bank customers direct the bank to process an estimated minimum payment well before the statement’s due date. Most major card companies offer the option to pay the minimum, a percentage of the amount due, or the full balance on time – the downside is giving card issuers the right to reach into one’s bank account.
The beauty of online banking is that much of our financial lives can go on autopilot. So try it.
Wallet Hub predicts Americans are on pace to end the year with more than $1 trillion in credit card debt. Rather than worry about recurrent late fees, another foolproof solution is to pay off the debt.
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