The headline is not supported by the article. The actual truth of the article comes in the middle:
> Borrowers who use autopay pay off between 8% and 17% less of their monthly credit-card balances compared with customers who make manual payments, according to the study... When credit-card customers sign up for autopay, they typically have three options for monthly payments: the required minimum, the statement balance in full or a custom amount. Most people who enroll in autopay choose either the minimum payment or full balance, said Wang.
In other words, if you're already in the financial position to set it to full balance, then you're doing great, and autopay isn't making you worse at anything.
While if you set it to minimum payment, your financial position is obviously not great, and you're paying more in interest. But there's no evidence autopay is the cause here. Your lack of money is the cause.
If you're somewhere in the middle where you can pay more than the minimum but not the full balance, obviously you're not using autopay, because the amount probably changes each month based on what's left over from your other expenses.
The idea that autopay is the cause of not paying your bills is absurd. Causality runs in the other direction -- people who are already among the worst-off and can only afford the minimum, turn on autopay. (As well as those who can afford the full balance, of course.)
Some people are just bad at managing finances. I had a loved one who racked up $10k in credit card debt because autopay was set to pay the minimum payment. The payments were low enough that they thought they had more money than they did, and adjusted their spending accordingly. Eventually the interest caught up with their monthly expenses, and they came to me confused and overwhelmed. I helped them consolidate the debt and changed the setting to "full statement balance" - it's now been over a year with no issue. (We talk finances monthly to confirm that everything's still going smoothly.)
Manually paying would have caught the issue before it snowballed. Setting up autopay for the full statement balance in the first place would have entirely prevented the issue, as the extra money went entirely to luxuries that they thought they could afford.
> If you're somewhere in the middle where you can pay more than the minimum but not the full balance, obviously you're not using autopay…
That's not obvious to me. Just because someone can pay more than the minimum balance, doesn't mean that they do. I think that's one case where autopay could cause someone to run up unnecessary interest. A person may know that they can't pay the full bill, so they set up autopay to make sure they at least pay the minimum.
However, someone poor at managing their finances might have gone in to pay more than the minimum if autopay wasn't available. But since it's set to autopay, they might not bother to make any additional payments. This isn't necessarily caused by autopay, but you could argue that if autopay didn't exist, some fraction of people who are currently paying the minimum balance, might have paid down balances more quickly.
I don't hav any particular evidence to support this, but it seems plausible enough to me not to be dismissed out of hand.
I think the problem is the term "minimum payment". A lot of people don't seem to understand that this is a basically arbitrary number. They will make them same mistake without autopay.
I once worked with a company developing a payday loan app. We interviewed hundreds of people with money problems. It was amazing how many people thought the minimum payment was the payment. I tried to explain to a handful of folks that it was possible to pay more than the minimum payment and that would help lower the balance. Lots of blank stares, then "But it says the payment is $50; why would I pay them more than I owe?"
All the people I talked to seemed like good people, but the lack of basic financial knowledge was shocking to me. Not as shocking as the payday loan industry, though. But that's a different topic. (If you're in the payday loan industry, quit now. Start dealing meth, you'll be doing the world a favor.)
Or, that autopay allows people to not look at the credit card bill (or directly pay it) psychologically allowing people to ignore it easier and spend more than they’re making?
Which isn’t really an autopay issue, so much as an ‘enabled by autopay’ issue.
This seems less efficient/more dangerous than simply asking for mailed statements and then auto-paying the full balance. They'll deliver you a physical statement in the mail for you to look through/digest, and you aren't risking missing a month and paying interest.
Why though? Are you actually paying the full statement balance in time each month this way and this avoiding interest charges? If so, then by paying before the due date you're giving away money unnecessarily, especially with interest rates at 5% now.
With higher interest rates, I stopped paying the full balance and instead try squeezing a little extra interest out of the money (I buy USFR, which is giving around 5.3% right now). I still pay the statement balance of course.
In other words, water is wet and people who are financially illiterate/irreponsible will continue making bad financial choices, no matter what tools are available to help aid them.
Isn't that a like like saying people are irresponsible when they fall for dark patterns?
This involves money and profit. Privacy policies involve money and profit.
In both cases, there are clear financial incentives to make things confusing to the benefit of the financial institution.
Because credit cards got so bad, they added "nutrition labels" by law. These are the required disclosures that take about APRs, penalties, grace periods, fees and minimum finance charges, etc
A broader look at credit card industry, for those who can pay off monthly balance, is those people use it to get more points than they would with the debit card attached to the checking account where the funds sit for the autopay.
Rewards and benefits on debit cards are low or nonexistent due to regulatory pressure in USA to have lower network processing fees than credit cards.
Europe has lower card network fees than USA, so there are fewer rewards cards available.
Agree this is a UX problem. They need an option, "Pay minimum + X amount each month" so a user could set it to be $25 for their min + $50 to pay down a bit of the balance. This is actually the prescribed way most places recommend to repair or keep a high credit score. If you pay it entirely off you get dinged, if you just pay minimums you get dinged.
How do you get dinged for paying it off entirely? I pay all my credit cards in their entirety each month, and it has not seemed to ding my credit score.
One thing that has really helped me is that you can set up the Apple Card so that it sends a notification to your phone for _every single purchase_, whether one-off or recurring. Of course you can turn this off if it annoys you, but I have found it's good to leave it on: it makes CC purchases "hurt" like spending cash does, and occasionally reminds me of recurring costs I would otherwise have forgotten.
Probably other cards let you do this as well, although I'm guessing they don't make it as frictionless as Apple's does (where IIRC it's the default), because it's not in the interest of other CC providers for you to be noisily reminded every time you spend money.
> not in the interest of other CC providers for you to be noisily reminded every time you spend money
All the big CC apps I use do exactly this. For big purchases some will send a notification to approve it in app on the fly. And yes, the alerts are very useful.
When you get an email with your statement you have to click on the button (or navigate to the website), put in username and password, wait for the text to arrive (because half of the banks I use don't support YubiKeys), navigate to the PDF, wait for that to load.
And then it's on my computer, a tool that is supposed to be there to make me more productive, but instead, Microsoft has elected to show me popups that I might want new TikTok templates.
Now, when I go get the mail, I walk there. I'm outside. Give my eyes some rest. No texts. Say hi to the neighbor. Stare angrily at the other neighbor who is using their leafblower on a high-smog day.
Walk back inside, open the mail. Look at the physical statement in my hands. No popups. No Slack calls appearing.
It all looks good? Great, shred and trash.
If it doesn't... well, then I'll need to sign in, wait for the text, and file a dispute. If I don't get distracted.
And another bonus is, you're costing the credit-card-issuing mega bank just a littttle more money to send you that paper statement and supporting the postal service on top.
A negligible amount to be sure, but an amount all the same.
This is the simplest and most effective form of security for your credit card as well. You can have the notifications sent to email which is less annoying and more effective. Taking a moment to review your transaction emails means you'll quickly discover if someone has stolen your card details, or if someone has overcharged you for a purchase.
I second this suggestion. My first card with CapitalOne back in the day also had this on by default (though naturally required the app), and I've made sure to go out of my way to turn it on with subsequent cards as well.
The dark patterns around auto-pay are part of the problem.
One that bit me a couple of times this year was my bank's offering the ability to set an auto-pay limit.
Which you would think means "auto-pay the lesser of the account balance or the specified limit," to help smooth out payments for a larger purchase.
But instead it means, "short-circuit auto-pay if the account balance rises above the limit." It's easy to miss the notification about this, which blends in with other emails from the bank. Voila, late charge!
The first thing I do for any credit card is enroll in autopay. You can always make additional payments and pay off in full, but late fees and late payments are arguably more disastrous for your long-term credit than accruing interest for a cycle.
And if you set autopay for the full amount you'll never have interest. I also have e-mail notifications for any transaction above $1 since I have yet to see a credit card with notifications for all transactions.
This is wild to see other perspectives. I'm a reasonably upstanding citizen and I have basically two categories of bills:
Bills that are auto-paid.
Bills that are late.
The auto-paid ones are completely on auto-pilot. If I have a particularly heavy spending month (maybe we took a trip somewhere), I might open my bank app to make sure there's enough cash in the account to cover the auto-payment. (Or I might not and either there will be, or auto-overdraft-protection will kick in and I'll end up paying a few bucks in interest.)
Counterpoint: autopay gives me peace of mind knowing that I won't miss a payment, which has huge downsides: credit score dings, interest charges, and potentially declined charges.
What I think trips people up is accounting for future expenses. The personal finance tools I've checked out focus on historical transactions but fail to put this to use and forecast future transactions. I set up GNUCash[1] to automatically create all the random monthly bills up to 3 months ahead of time, including a guess at CC totals.
I still check monthly, but its mostly just confirming nobody's stolen my card and updating my investments, which I can't forecast ahead of time =)
I haven't paid bills "manually" in almost 15+ years. You waste so much time opening mail, writing checks, buying stamps, etc. I put everything on auto-pay, with the exception of property taxes (only because the city won't allow it.)
Do you not have the option to receive emails and pay online?
All of my "manual" bills work that way. It takes a few seconds of clicking to schedule the payment on the due date for the full amount, and even log it to my software, which doubles as a chance to check that there wasn't something unexpected going on.
I think being fully aware of every bill or credit card you pay is helpful in being full control of your finances. I get that impression that some people using automatic payments don't slow down to review things carefully. That may not be the case for you, but that doesn't mean others don't make that mistake.
…except autopay isn’t invisible? Also what in the world does paying off a credit card monthly have to do with “nickelandimeism”? How you use the CC is a wholly separate from how you manage its payment.
I use the same practice. When I tried autopay, years ago, I felt like I never really knew how much money I had; it was like simultaneously balancing a checkbook backwards and forwards in time. Now I do it manually, paying off all current bills every time I get a paycheck, and that is much easier to understand.
I'm the opposite. I know it's wrong, because I'm giving companies free loans or whatever, but when I pay recurring bills (that aren't on autopay) I just multiply by 10 so I only have to pay once a year or so.
Especially when I was doing a lot of traveling, I pretty much switched everything I could to auto-pay. I always found the weekly or biweekly bill paying something of a drudgery. I still periodically look through stuff but it's pretty rare I find a problem I need to deal with (and that's usually something like a charge from some payment processor I just didn't recognize).
Which it does definitely remove a lot of the work. Which removes a lot of the incentive to pay fewer things (requiring such work), and removes a lot of the visibility towards exactly what is being paid (and trends, etc.).
This is what I do as well, I opened a second checking account so half of my monthly bills is auto deposited from each paycheck and I set all my bills to be at the end of the month so I can make sure everything is smoothly going through. I even have a Google sheet where I keep track of balances weekly and what bills are coming up like the yearly Amazon or something
"Most people who enroll in autopay choose either the minimum payment or full balance, said Wang."
This is the problem. You should always be able to comfortably make the full payment if you manage your budget proactively—I highly recommend YNAB for this. If you can't proactively manage your budget, you should be using a debit card.
It’s also arguably innumerate, or at least financially unaware. The middle option is the optimal choice, as it gives you a free one-month loan from the bank. Interest doesn’t accrue until you’ve carried a balance over month to month.
What is the "middle option" between paying the minimum and paying the full balance that is more optimal?
If you pay the full balance on the due date, you get the interest-free loan. It's not exactly one month, but it's from purchase date until due date, which is something like 25-55 days.
From the research paper, it seems that this conclusion is based on less creditworthy cardholders.
> The credit card products offered by the fintech company range from $500 to $10,000 in credit limit and 10% to 30% APR, and are generally targeted toward consumers with lower credit scores and/or shorter credit records compared with the general population of cardholders.
Readit News
> Borrowers who use autopay pay off between 8% and 17% less of their monthly credit-card balances compared with customers who make manual payments, according to the study... When credit-card customers sign up for autopay, they typically have three options for monthly payments: the required minimum, the statement balance in full or a custom amount. Most people who enroll in autopay choose either the minimum payment or full balance, said Wang.
In other words, if you're already in the financial position to set it to full balance, then you're doing great, and autopay isn't making you worse at anything.
While if you set it to minimum payment, your financial position is obviously not great, and you're paying more in interest. But there's no evidence autopay is the cause here. Your lack of money is the cause.
If you're somewhere in the middle where you can pay more than the minimum but not the full balance, obviously you're not using autopay, because the amount probably changes each month based on what's left over from your other expenses.
The idea that autopay is the cause of not paying your bills is absurd. Causality runs in the other direction -- people who are already among the worst-off and can only afford the minimum, turn on autopay. (As well as those who can afford the full balance, of course.)
Manually paying would have caught the issue before it snowballed. Setting up autopay for the full statement balance in the first place would have entirely prevented the issue, as the extra money went entirely to luxuries that they thought they could afford.
That's not obvious to me. Just because someone can pay more than the minimum balance, doesn't mean that they do. I think that's one case where autopay could cause someone to run up unnecessary interest. A person may know that they can't pay the full bill, so they set up autopay to make sure they at least pay the minimum.
However, someone poor at managing their finances might have gone in to pay more than the minimum if autopay wasn't available. But since it's set to autopay, they might not bother to make any additional payments. This isn't necessarily caused by autopay, but you could argue that if autopay didn't exist, some fraction of people who are currently paying the minimum balance, might have paid down balances more quickly.
I don't hav any particular evidence to support this, but it seems plausible enough to me not to be dismissed out of hand.
All the people I talked to seemed like good people, but the lack of basic financial knowledge was shocking to me. Not as shocking as the payday loan industry, though. But that's a different topic. (If you're in the payday loan industry, quit now. Start dealing meth, you'll be doing the world a favor.)
Which isn’t really an autopay issue, so much as an ‘enabled by autopay’ issue.
This involves money and profit. Privacy policies involve money and profit.
In both cases, there are clear financial incentives to make things confusing to the benefit of the financial institution.
Because credit cards got so bad, they added "nutrition labels" by law. These are the required disclosures that take about APRs, penalties, grace periods, fees and minimum finance charges, etc
Rewards and benefits on debit cards are low or nonexistent due to regulatory pressure in USA to have lower network processing fees than credit cards.
Europe has lower card network fees than USA, so there are fewer rewards cards available.
Probably other cards let you do this as well, although I'm guessing they don't make it as frictionless as Apple's does (where IIRC it's the default), because it's not in the interest of other CC providers for you to be noisily reminded every time you spend money.
All the big CC apps I use do exactly this. For big purchases some will send a notification to approve it in app on the fly. And yes, the alerts are very useful.
When you get an email with your statement you have to click on the button (or navigate to the website), put in username and password, wait for the text to arrive (because half of the banks I use don't support YubiKeys), navigate to the PDF, wait for that to load.
And then it's on my computer, a tool that is supposed to be there to make me more productive, but instead, Microsoft has elected to show me popups that I might want new TikTok templates.
Now, when I go get the mail, I walk there. I'm outside. Give my eyes some rest. No texts. Say hi to the neighbor. Stare angrily at the other neighbor who is using their leafblower on a high-smog day.
Walk back inside, open the mail. Look at the physical statement in my hands. No popups. No Slack calls appearing.
It all looks good? Great, shred and trash.
If it doesn't... well, then I'll need to sign in, wait for the text, and file a dispute. If I don't get distracted.
A negligible amount to be sure, but an amount all the same.
One that bit me a couple of times this year was my bank's offering the ability to set an auto-pay limit.
Which you would think means "auto-pay the lesser of the account balance or the specified limit," to help smooth out payments for a larger purchase.
But instead it means, "short-circuit auto-pay if the account balance rises above the limit." It's easy to miss the notification about this, which blends in with other emails from the bank. Voila, late charge!
You can clearly demonstrate the exact customers harmed by it. You should see if you can find a law firm to take it on.
Weird, all of my cards allow for notifications for all purchases.
Every two weeks I check all credit cards, pay my mortgage, utilities, etc.
Bills that are auto-paid.
Bills that are late.
The auto-paid ones are completely on auto-pilot. If I have a particularly heavy spending month (maybe we took a trip somewhere), I might open my bank app to make sure there's enough cash in the account to cover the auto-payment. (Or I might not and either there will be, or auto-overdraft-protection will kick in and I'll end up paying a few bucks in interest.)
I just mentally went down the list and it hurts me to admit it but that's the exact same for me.
What I think trips people up is accounting for future expenses. The personal finance tools I've checked out focus on historical transactions but fail to put this to use and forecast future transactions. I set up GNUCash[1] to automatically create all the random monthly bills up to 3 months ahead of time, including a guess at CC totals.
I still check monthly, but its mostly just confirming nobody's stolen my card and updating my investments, which I can't forecast ahead of time =)
[1]: https://www.gnucash.org
All of my "manual" bills work that way. It takes a few seconds of clicking to schedule the payment on the due date for the full amount, and even log it to my software, which doubles as a chance to check that there wasn't something unexpected going on.
I think being fully aware of every bill or credit card you pay is helpful in being full control of your finances. I get that impression that some people using automatic payments don't slow down to review things carefully. That may not be the case for you, but that doesn't mean others don't make that mistake.
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It's time well spent — making sure I am paying for the things I really need/want.
This is the problem. You should always be able to comfortably make the full payment if you manage your budget proactively—I highly recommend YNAB for this. If you can't proactively manage your budget, you should be using a debit card.
If you pay the full balance on the due date, you get the interest-free loan. It's not exactly one month, but it's from purchase date until due date, which is something like 25-55 days.
Dead Comment
Cited research: https://kenaninstitute.unc.edu/wealthinequality/wp-content/u...
From the research paper, it seems that this conclusion is based on less creditworthy cardholders.
> The credit card products offered by the fintech company range from $500 to $10,000 in credit limit and 10% to 30% APR, and are generally targeted toward consumers with lower credit scores and/or shorter credit records compared with the general population of cardholders.
Who are exactly the target of most of the abuse in the credit industry.