Recurring Transactions Benefits And Risks

Setting up recurring transactions on your credit card has potential for making financial management a lot easier, but can also cause problems down the track.

These transactions, which could be used for any ongoing membership, subscription or other fees, can be automatically charged to your card after an initial set-up process between you and the merchant or organisation.

While it may seem easier to charge these fees on your credit card instead of via direct debit or a debit card, there are some considerations that should be made before going ahead. The pros and cons outlined here should help you to decide whether the benefits of recurring transactions will overrule the risks or if another option should be considered.

Pros For Recurring Credit Card Charges

One of the biggest benefits of using a recurring transaction feature with your credit card is that it frees up your own money and accounts so that going under the balance of an everyday account is less of an issue.

Some accounts will also charge more fees if a certain number of transactions is reached each month, and by charging recurring fees on credit you may also be avoiding hefty banking fees.

In terms of specific card features, the regular amounts being charged on the card could help to boost points on a rewards card so that redemptions can be made more quickly.

It can also be a huge benefit for businesses that are using a business credit card because these charges can then be itemised and used for more efficient accounting and tax returns.

Risks Of Recurring Transactions On Credit Cards

As with most kinds of credit card use, the biggest risk for setting up recurring transactions on credit is that you will have to pay interest. Even on a low interest credit card, if the charge is made right before a statement is due, or a repayment is forgotten, it could lead to more interest adding to the outstanding balance.

Another risk is of falling into debt from processing errors. When a recurring transaction is cancelled, for example, some merchants or organisations may accidentally continue charging that same amount. If card statements are ignored or skimmed over, this could also lead to a higher balance and more interest that could take months to sort out.

Other disadvantages to recurring transactions on a credit card include:

• Making it harder to spot credit card fraud
• Being subjected to higher cancellation fees
• Making it harder to meet repayments and get out of debt

When used carefully, the recurring transaction option can be a benefit, but it is worth considering the risks as well so that you can be prepared for any mistakes and issues before they become even more serious problems.