As long as you can afford it, using a financial product like a credit card to pay for as many things as possible can be a wise move. It’s convenient, it’s fast, and it can earn you rewards like points or cash back. If you’ve thought about paying for your recurring bills with a credit card, there are pros and cons, however. Whether you can, and should, choose plastic depends on the type of expense and whether it’ll cost you extra. Read on to learn more about paying bills with a credit card.
Bills You Can (and Can’t) Pay with a Credit Card
There are numerous service companies that allow you to pay your bills with a credit card – more than you may realize, in fact. Utility providers – such as water, heat, and electricity – cable and Internet providers, phone companies, and music or video streaming services all typically accept credit card payments. The Bilt Mastercard, for example, is a first-of-its-kind rewards credit card that earns points on rent payments.
Some insurance providers will also allow you to pay with plastic, and you can even pay some of your taxes with a card. Unfortunately, not all bills are payable with a credit card (by default). Mortgages and rent, car payments, and student loans are generally not eligible for credit card payments.
In certain cases, the companies that process these bills may make exceptions, but you must contact them directly and inquire. Regardless of the type of expense you can pay with a credit card, be wary of convenience or processing fees that you may be charged, which could make the entire approach no longer worth it (more on that below).
What Are the Advantages of Paying Bills with a Credit Card?
Taking care of your ongoing financial responsibilities with a credit card can certainly work in your favor. Below are the main benefits of doing so:
- You can earn rewards for using your credit card to pay bills. By using a cash back or travel rewards credit card to pay your bills, you can easily earn points or money every month for expenses you need to make anyway. Putting a large charge on your credit card, like rent or a mortgage (if the provider allows it), will add a nice boost to your rewards tally, especially if the card you use has an earning multiplier.
- It’s easier to earn a sign-up bonus. As a new account holder, your card issuer may offer a signup bonus – like 50,000 points or a $200 statement credit (such as you’ll find with the Chase Freedom Flex, Unlimited, or Citi Custom Cash, etc.)– but you’ll most likely need to meet a spending requirement of a few thousand dollars within a time window. Put your bills on your credit card and you’ll reach that goal faster.
- You can save time making payments. If you write and mail checks from your bank account to pay your bills on time, using a credit card will significantly cut the time it takes to submit your payments. Whereas mailing a check will take a few days for the recipient to receive it – which can be risky if you’re close to your due date – paying with a credit card is practically instantaneous.
- You may save some money. Several card issuers offer an auto-pay option to ensure you’re never late on your payments. Some will even lower your monthly cost when you opt for this feature. While you can use a checking account when resorting to auto-pay, a credit card is also a smart alternative.
- It can help you keep better track of all your expenses. Using a single credit card to pay for several bills allows you to view all your payments within a single statement, therefore you’ll have an easier time staying organized. Additionally, it’ll be less likely that you’ll forget a payment.
Are There Downsides of Paying Your Bills with a Credit Card?
Just because you can pay for a bill with a credit card doesn’t mean you should, and if you do, you’ll need to be disciplined. These are the most significant disadvantages of going the way of plastic:
- You may have to pay convenience or processing fees. Some service providers don’t charge fees for processing credit card payments, but others do. If there is a fee, it will usually be a small flat amount or a percentage. However, those fees can add up if you use a credit card to pay for several bills that incur them, so you’re really increasing your monthly expenses by living with fees – in addition to your typical interest rates. Plus, if you use a card that earns points or cash back, those rewards are essentially being offset by the convenience fees you must pay.
- Your credit card balance and credit utilization ratio will increase. If you add bills to a card’s ongoing list of charges, you will naturally have more to pay off your balance each month. In addition, using up more credit will raise your utilization ratio, which is one of the most important factors when calculating your credit score. If your utilization ratio is consistently high, your credit score will eventually begin to decrease. Moreover, mounting balances and a climbing ratio will make you look less favorable to future lenders who may get the impression that you’re constantly in need of a line of credit in order to get by, and result in higher credit card interest rates down the line.
- You may easily end up owing a lot in debt and finance charges that will be difficult to pay off. Related to the above point, adding bills to your credit card balance can be treacherous if you already have a significant amount owed. Spending only what you can afford cannot be overstated, because not paying your statement balance in full every month will result in interest charges, and missing payments will cost you in the form of late fees. Therefore, if using a credit card for expenses sinks you into a deeper financial hole, you’re better off paying with cash until your circumstances change.
Best Practices for Paying Bills with a Credit Card
- Beware of fees. One of the main reasons companies do not accept credit cards as a form of bill payment is because they do not want to be charged interchange fees. Those who do accept cards may still avoid the fees by passing them to you, the customer. If you don’t wish to be charged extra, try to use your card for bill payments that won’t include extra fees.
- Use a third-party service if you can’t use a credit card directly. There is an alternative way to use your credit card to pay bills for companies that don’t accept that payment form. Third-party companies like Plastiq and Paytm pay your bills on your behalf and charge the amounts as a purchase to the credit card of your choice. This method works well if you’re set on earning more rewards with your card, but note that such services almost always charge convenience fees of their own.
- Set up automatic payments. Autopay can be a savior if you’re prone to forgetting due dates. With as many bills automatically paid as possible, you’ll have fewer reminders to set, and you’ll come out winning if there’s some form of incentive for using the feature. You can also contact your providers and ask for your due date to be changed if you need to strategically align them for numerous bills.
- Always pay your statement balance in full. The most important tip to remember, paying your full statement balance is crucial to maintaining your credit history’s health. Depending on the total amount of bills you choose to pay with your credit card, your card’s balance could spike significantly, so evaluate your other spending habits before making any decisions. If paying by card doesn’t work out, you can always change to another method, but even one mismanaged instance can have lasting repercussions for your financial reputation.
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