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Many subscription services offer a trial or introductory period to entice new customers to try the product, usually at a deep discount and sometimes for free. This can ultimately work out well for the service, as it's counting on you to sign-up with a credit card, set your account to autopay and then forget to cancel.
Many of us have multiple streaming services linked to your credit card, as well as monthly subscription services that deliver all kinds of products to our home, from coffee to wine, cosmetics to pet supplies and any other imaginable consumer product.
But all these subscriptions can get very expensive, very fast. How can you prioritize and decide if you can afford all of these expenses in your monthly budget? We spoke to a few experts to explain how autopay subscriptions can affect not only your cash flow, but your credit score, and how to best manage them.
Many streaming services and monthly subscription boxes require a credit card to set up your account. For goods or services that you use and enjoy, this billing arrangement keeps your account active and in good standing.
"Setting up automatic bill payments for subscription services is one way to ensure that you never miss a payment deadline for those services," says Rod Griffin, senior director of consumer education for Experian. "As long as you manage the debt responsibly and are not charging more than you afford to repay each month, using a credit card for monthly subscription fees can have some benefits."
Here are some benefits for setting up autopay to your credit card
- You can earn rewards. Many credit cards offer a rewards structure, which can yield 1X point per $1 spent. These points can be redeemed for airline miles, merchandise or gift cards, or cash back. The Wells Fargo Active Cash® Card, which has no-annual fee, gives cardholders the chance to earn a flat 2% cash rewards on eligible purchases (see rates and fees). And, select credit cards like the Blue Cash Preferred® Card from American Express offer 6% cash back per $1 spent for select U.S. streaming services linked to your card.
- You get fraud protection. If you feel like you've been overcharged, credit card companies offer protection for purchases made with your account.
- Your credit card account stays active. Griffin points out that linking your credit card to an autopay subscription can be a helpful way to show issuers that you're using your credit card. It's important to charge something from time to time, so the card issuer doesn't close your account due to inactivity. Just make sure you also set up autopay on your credit card bill so you don't miss a payment.
What are the risks of setting up autopay?
The golden rule for credit card use is to pay off your balance in full each month. "Doing so will help you avoid paying interest fees on these charges and accumulating debt unnecessarily," says Griffin.
Unfortunately, it's easy to get into a habit of mindless credit card swiping, and it's even worse when you have a bunch of autopay subscriptions set up and you don't regularly use the service.
If you're using a credit card to pay for an autopay subscription that you cannot really afford, or if you notice that you're having trouble paying your balance in full every month, Griffin suggests you may need to take a closer look at your budget and consider cutting unnecessary expenses.
"While credit can be used as a financial tool, debt can be a financial problem," he says. "Using your credit cards to subscribe to services you can't comfortably afford to repay each month can result in missed payments and high balances, which can damage your credit score."
If you link your credit card to an autopay subscription, pay careful attention to your credit card statements each month to ensure all charges listed are accurate.
You should also consider the vendor you're using before signing up for autopay. Although autopayments can help you stay on track with bills and other regular payments, be mindful when you give a company permission to charge your credit card each month.
"Before you give a company permission to make automatic withdrawals, make sure the company is legitimate and credible," says Amy Zirkle, payments and deposits program manager with the Consumer Financial Protection Bureau. "You should never give your bank account, debit card or credit card information to a company that you're at all unsure about."
Before signing up for any new service, Griffin advises that it's best to take a look at your overall budget to ensure that you can afford the new expense without putting a strain on your finances.
"For example, if making a new purchase or signing up for a new subscription will make it difficult to contribute to your savings or cause you to struggle meeting any of your other financial obligations, you may want to reconsider," he says.
In addition, if you have several of the same types of subscriptions, it's worth taking the time to prioritize. For example, do you need five streaming services, or three types of meal subscriptions each month? Take an inventory of what subscriptions offer you the most value for the cost and decide that way. Cancel the rest.
A good rule to follow is asking yourself whether the purchase is a want or a need, and if it is something that you can comfortably afford, Griffin says. Even if cash is tight, it's OK to have a few small things you splurge on — a workout app you love or a subscription to a streaming service to help you unwind at the end of the day. But you don't need all of them.
In addition, it's important to keep in mind that the pricing of subscription services aren't static. "Prices change all the time. And generally speaking, when they change, they're not usually getting any cheaper," says Monica Eaton-Cardone, COO of Chargebacks911. "You need to monitor this, because if the price goes up, you might not be auto-paying the correct amount anymore."
There are a number of subscription tracking services out there if you don't have the time to track down all the different services you've got on autopay. Select ranked Rocket Money (formerly Truebill) as the top subscription tracker thanks to its easy-to-use interface that lets you see all of your subscriptions in one place. You can link your credit card and bank account to the app, and it will scan your bills for anything recurring charges.
Seeing all your subscriptions in one place can help you decide what's most important, and for an additional fee, Rocket Money (formerly Truebill) will take steps to cancel the subscriptions you don't want.
Even if you don't want to pay for a subscription tracking service, it's worth taking the time every few months to review what you've signed up for and take the time to cancel any you're not using regularly. Some credit card issuers will let you see all the autopay subscriptions you've set up on your card. Chase cardholders can use the Chase Saved Account Manager and Capital One Cardholders can use Eno®—Capital One® Assistant.
And it's best practice to set up a calendar reminder anytime you sign up for a new subscription service so you can cancel it before your free trial ends as well as keep track of the date it will show up on your monthly bill if you want to cancel it in the future.
While it can be a bit of work to track autopay subscriptions, taking the time to cancel anything you don't need can save you a lot in the long run.