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How to set up direct debits using your credit card

How to set up direct debits using your credit card

Everyone has regular monthly expenses and, considering our busy schedules, staying on top of them can get challenging. These could include gym memberships, utility payments and streaming subscriptions, among others. Rather than keeping track of the bills month on month, you may want to consider just setting up direct debits on your credit card.

When you pay direct debit using a credit card, you’re not only ensuring you meet your financial obligations on time, but you’re also keeping your credit score in check. However, before you rush to put all payments on your credit card, there are some risks to keep in mind

How can I set up direct debit on my credit card?

You’ll need to give permission to each provider to automatically debit your credit card for a fixed or variable amount each month.

Each credit card issuer could have a different procedure for setting up direct debit on your credit card, but you can usually do it by reaching out to your service provider or merchant online or on the telephone and providing them with your credit card details, including your credit card number, expiry date and card verification code. If you’re setting up or managing your account online, you’ll see an option of adding your credit card as a preferred payment option. Enter your credit card details and from then on all your payments will be automatically deducted from your account when the next bill is due.

Questionas to ask before setting up a direct debit using a credit card

Setting up a direct debit from your credit card can be a convenient payment option, however before you do it, ask yourself the following:

  • Is the service provider you're sending the direct debit to trustworthy? Use your credit card or debit card to set up a direct debit only for those services and providers that you trust.
  • Are you aware of the steps to cancel the direct debit?Before you set up the direct debit, familiarise yourself with the steps to cancel the direct debit if you don't need it anymore or are planning to close the credit card.
  • Will you be able to make your credit card payments?Most importantly, make sure that you can pay off your credit card bills comfortably at the end of each month before you set up a direct debit. Any unpaid amount may accrue interest, and you'll end up paying more than the actual bill amount, as well as risk falling into debt.

Check your bank statements regularly

Once you’ve set up your direct debit from your credit card, it is easy to forget about it. However, you need to keep checking your bank statement regularly to make sure that you’re being billed correctly and your payments are being made on time.

It is essential to keep track of all your payments because on closer examination you might find that you’re still being billed for services that you might have discontinued, such as a gym membership, or a streaming subscription.

How can I cancel a direct debit from a credit card?

You might need to cancel a direct debit if you're closing your credit card or you no longer use the service that you’re paying. In case of a card closer, ensure your bills continue to get paid on time by setting up direct debits from another account.

If you’re cancelling a direct debit because you no longer use the service, you can simply call your service provider and cancel direct debit over the phone, or you can manage your payment through your online account. You could also contact your credit card provider to cancel your direct debit and ask for a written confirmation.

Check your bank statement regularly to ensure that the direct debits have been cancelled.

What are the possible disadvantages of direct debits from a credit card?

You might be considering direct debit to a credit card as a convenient way to pay your bills on time or to keep your credit scores in check. However, in both cases, you should also be aware of the following risks:

  1. Debt. Most direct debits are typically ongoing expenses, such as utilities bills. Generally speaking, most Australians should attempt to manage their budgets to meet these expenses with a standard debit card. If you’re putting your ongoing expenses on your credit card because you cannot meet them with your regular income, you may want to consider whether putting them on your credit card is the best course of action.
    This can lead to snowballing debt if you’re unable to pay your balance, or even meet minimum repayments, each statement period. Plus, by putting your direct debits on to your credit card you run the risk of accruing interest on these payments. Consider speaking with a financial adviser if you’re struggling to pay your ongoing expenses.
  2. Timing of the direct debit: If the balance on your credit card is due before you get paid, then you might be better off not scheduling a direct debit right then. A single debit might not be a problem, but if you have arranged for multiple direct debits to cover numerous financial obligations, collectively they could send you into overdraw.
  3. Overdraws: You may also easily slip into overdraw if your account balance does not have adequate funds to cover an automatic debit, or if you max out your credit card. Not only this, but if you’re unable to pay your balance in full each statement period, you will accrue interest on your outstanding balance, plus potentially pay a costly overdraw fee.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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