Should you autopay utility bills via credit card?

Autopay facility of credit cards can be helpful in case if you find it difficult to remember due dates of utility bills, such as phone bill, electricity bill, insurance premiums, etc. It can save you from late payment penalties on utility bills, and at the same time, earn reward points and other credit card benefits. But what if the auto-payment facility fails due to some technical glitches at your utility provider's end? It often becomes difficult to get the problem resolved if something like this happens. Therefore, you should be extremely cautious before opting for such a facility.

Here are the advantages and disadvantages of using autopay facility for paying utility bills via credit card.

A. Advantages

1. Eliminates late payment of utility bills 

The autopay facility of a credit card ensures automatic payment of your utility bills via credit card on time and helps you avoid paying late fees or interest applied on your utility bills in case of late/missed payment. You may find autopay facility useful for utility bills (e.g electricity or water bills) which are payable every month. Anuj Kacker, Co-Founder, MoneyTap, a Bengaluru-based Fintech firm said, "If you are travelling or occupied with a lot of routine activities, the autopay option can help organize your payments and ensure that they happen smoothly. Mostly, you can choose a date when you want the auto debit to happen from your credit card before the utility bills' payment due date every month."

2. No need to remember multiple due dates

Your utility bills get paid on time with the help of autopay facility on your credit card and all you need to do is to make one lump-sum payment to clear your credit card dues. This way, you don't have to track multiple utility bills' due dates - just the due date of your credit card bill.

3. Avail cashback, reward points 

Some banks or card issuers also offer higher cashback and/or reward points on bill payments routed through the autopay facility. So, if you do not miss any payments due on your credit card (i.e do not miss clearing your credit card dues on time) then you may be able to get reward points or cashback on the payments made via autopay facility on your credit card. These points can be used later to pay for travel, shopping or eating at restaurants.According to HDFC bank website, if you use SmartPay facility on your HDFC credit card, which is an automatic bill payment facility, you can get up to Rs 1200 assured cashback for the first 12 months and e-vouchers worth Rs 250.

4. Helps in managing liquidity

Credit card autopay facility can also help you manage your liquidity and payment cycles. An interest-free period of 20-50 days is available for payments made via credit card depending on the date of card transaction and the due date of credit card bill payment.Pranjal Kamra, CEO, Finology, a Raipur-based fintech firm, said, "You don't need to worry about your bill payment even if you are running out of cash or yet to receive your salary. Through the credit card option, every individual gets a free credit period which ranges from 20 - 50 days. It means that this option helps you in borrowing for free (0 per cent interest in this period) to pay your utility bills."Also read: How interest on credit card due is calculated

5. Helps in maintaining a good credit score

Utility bill payments provide you with an easy way to develop a good credit score using your credit card. Adhil Shetty, CEO, BankBazaar.com said, "As long as you can repay your credit card dues on time, you will improve your score. This will keep you in good stead when you decide to apply for a big loan. Therefore, because of the autopay facility, utility bill payments through your card gives you an easy way to develop discipline with credit use." 

B. Disadvantages

1. You could overlook billing errors

There could be billing errors, hidden transaction charges, handling fees, and other charges in your utility bill which you may overlook because of autopay facility. This way, you can end up paying more needlessly.Kamra said, "Most of the time when we pay utility bills manually, it is more likely that we review the statement and transaction record before making the payment. This helps us in easily identifying the unusual price changes or any error in the bill. But, in the case of autopay facility, as we are not checking the bill computation, even an erroneously high bill can get paid" 

2. Maintain balance in your savings account

You will have to make sure you have enough money in your account to pay your credit card bill on time. Sahil Arora, Director & Head Investments, Paisabazaar.com said, "You must pay your entire credit card bill by the due date. Failure to do so would attract hefty finance charges ranging between 36%-49% per annum. Non-payment of the minimum due amount would additionally attract late payment fees and adversely impact your credit score and thereby, your future loan and credit card eligibility."Finance charges typically mean the interest charged on a debt you owe. It is calculated based on an annual percentage rate (APR) along with the amount of money you owe and the period for which you owe it.

3. Canceling autopay facility is cumbersome

Canceling the autopay facility for utility bills is not as easy as the activation process of the same. Kamra said, "You need to inform your bank/card issuer 5- 10 days before the bill due date. For some banks/card issuers, the deactivation process is completely offline, you need to submit the request in writing which is again a very time-consuming process."

4. You might unnecessarily continue paying for subscriptions you don't want

You may end up spending money needlessly if you have subscribed to a service such as Audible or Netflix and set up auto-debit payment for the same via your credit card. It may happen that you stop using the service after a few months but continue to pay for it for much longer because of the auto-pay system which you may forget to switch off. This may happen if you find it difficult to keep track of unnecessary utility/service subscription payments and stop auto-debit. 

Things to watch out for while using autopay facility 

Arora said, "If you have multiple credit cards then you should compare the autopay facilities available on various cards on the basis of their reward points, cashback, vouchers, etc." He further said, "Those having frequent liquidity issues can spread their auto-payments across multiple cards to avail the maximum interest-free period on each utility bill payment."Shetty said that usually well-established banks have the world-class digital infrastructure and auto-payments rarely fail. "But occasionally there may be a missed payment for reasons such as a backend problem at your utility provider's end. Therefore, track your payments and intervene on the rare occasion a payment fails," he added.

Be mindful of the percentage of your credit card's spending limit you are using in a month. Shetty said, "If you're using your card for utility payments as well as for shopping and other transactions, try and remain under 30 percent of your spending limit. If not, your credit utilization ratio will increase, which will lower your credit score. This could be a problem if you're trying to take a loan."Therefore, if you are using your credit card every month for multiple utility bill payments, do keep a check on how much of the spending limit you are using. 

Should you opt autopay facility on your credit card? 

Kamra said, "Good financial habits include managing debt repayment responsibly. You can use an autopay facility on your credit card but with self-discipline. Because, using a convenience is a good approach, but excess reliance on it could create unwanted issues." He further said, "Autopay facility helps save time and avoid late bill payment fees, but you need to keep track of your spending and the amount of your utility bills. You must also ensure that you have enough money in your savings bank account to repay the lump-sum credit card bill amount by credit card bill due date to avoid paying finance charges and late payment fee."However, if you choose to opt for the facility be aware of the problems -as listed above--that may arise due to it use.

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