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Should I Automate or Manually Pay My Creditors?

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How can I pay off my credit cards faster? You could be unknowingly derailing your debt repayment plan by automating your payments.

white desktop with pink notepad and calculator, money in clip with text overlay "a sneaky way creditors keep you in debt longer"

Do you find yourself wondering, “how can I pay my credit cards off faster?” It's a great question, and I've got a secret trick to doing so.

Giving a second thought to whether or not automate or manually pay your monthly credit card and student loan debts may be about a hair's breadth above getting the dust bunnies out of your work keyboard.

It just doesn't seem that important.

But depending on which one you choose, you could be lengthening your Debt Freedom Date significantly.

Why is that?

Let's take a look at why you would and would not want to do each of these options.

How can I pay my credit cards off faster? Let me show you a secret trick you haven't thought of before. Click To Tweet

Why You Would Want to Automate

Automation is awesome. Let's face it − to set it up once and not have to ever worry again about paying a bill (other than that you keep earning income to cover it) is priceless.

Another big reason why you'd want to automate your debt payments is consistency.  Consistency is KEY in debt payoff. Especially if you want to avoid dings on your credit report just because so-and-so forgot to press “submit” on the payment last June.

Another reason for consistency? Some student loan lenders will give you a discount on your interest rate after a number of consecutive, consistent payments. For example, while paying off my Sallie Mae Loans, I got my interest rate lowered by an incredible 1% automatically after making 36 consecutive, consistent payments. That was awesome!

Consistency is KEY in debt payoff. Click To Tweet

Now let's look at why you wouldn't want to automate your debt repayments:

  • You're Set Up For Longer Debt Repayment: The minimum payment will go down as you pay off your debt over the years. This is because your minimum payment is calculated as a percentage of the principal. So you will unknowingly take longer to pay off your debt if you only ever pay the minimum automatically (sneaky little trick, eh?).
  • More Paperwork to Slip through the Cracks: If you change bank accounts, then you would have to remember to re-set up your automations, or risk defaulting on a payment (ask me how I know that one?).
  • Minimum Payment Trap: You are more likely to just make the minimum payment, even if you can afford to make more than the minimum, because you set-it-and-forget-it with this method.
  • It Disconnects You from the Emotions: Automation takes the emotions out of personal finance. This can work IN your favor when saving money, but can work AGAINST you when paying off debt. That's because you don't see how much that debt is really costing you, and you may be more apt to rack up some more moving forward.

Why You Would Want to Pay Manually

Manual payments put you in the driver seat, which can be both a good or a bad thing (probably how most mothers of sixteen-year-olds feel).

Manual payments put you in the driver seat, which can be both a good or a bad thing (probably how most mothers of sixteen-year-olds feel). Click To Tweet

If we assume you're great with manual shifting, then there are some real benefits to manually making your monthly debt repayments.

For one, since you're going to your creditor's website each month and manually making a payment, it's much easier (and more likely) to pop on a few extra dollars that you have sitting in your checking account. Saved $25 by not going out one Friday night? Tack it on to your minimum. The results are immediate and cascading.

Another great thing about making manual payments? You really feel your debt. Maybe that's not something that makes you happy, but it is something that will make you think twice about racking up more debt in the future.

Now let's look at why you wouldn't want to manually make your debt repayments:

  • Forgotten Payments: It's pretty easy to forget a payment when you have to make it each month (especially in our paperless-statements society).
  • Miss Out on a Discount: Lenders know that it is more likely they'll be paid back + interest if someone sets up automated payments. So some of them will throw you a 0.25% discount bone for doing so. You could miss out on this if you manually make your payments.
  • Takes Up More of Your Time: You will also spend more time and energy by having to go in and make the payment each month (though this should be minimal).

See why you might want to take a second look at whether or not you want to make manual or automatic debt repayments when thinking about how to manage your money? There's really no right answer here, there's only the right answer for you. Financial gurus might balk at that, specifically if you're able to take advantage of a discount in some way for setting up automation. But if you're a forgetful person, one late payment with tacked-on penalties and a ding on your credit report far outweighs any gains from that discount. On the other hand, you might be a very conscientious person who easily will remember (and will actually do) to send in extra payments as you have them, plus adjust your automatic payment as your minimum naturally decreases.

It's really just all about who you are and what works for you.

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Amanda L. Grossman is a Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 10 years, her money work helping people with how to save money and how to manage money has been featured in Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.

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