Paying your bills with your credit card may seem like a quick and easy way to rack up a boatload of points or cash back towards your next getaway (a cruise, perhaps?). But using a credit card for monthly bills could also put you on the road to accumulating a mountain of interest charges.
So is it a smart move for you?
If your credit card provides rewards, points, miles, or cash back, using it can be a great way to make sure you’re getting the most out of your rewards program.
When you’re paying $800 in bills a month, for example, you could get a few hundred dollars in cash back or a free plane ticket each year. (Some credit cards exclude certain types of transactions, so it’s wise to verify with your issuer what types of transactions are eligible for rewards).
Rewards aside, paying bills with your credit card is also convenient. You can pay online or using your phone, so you don’t have to write checks (or pay for the postage to mail them). Be sure to read the fine print, some vendors charge fees for certain transitions.
All that sounds nice, but some pitfalls could make the credit card method unwise for your bottom dollar. When paying bills with a credit card, you’ve got to stay on top of how much you’re spending. Here are a few tips to help you make paying bills with a credit card a yay (not a nay):
Embrace Type A tendencies.
This may seem obvious, but it’s certainly worth reiterating. Keep a close eye on how much is in your checking account and make sure your credit card balance doesn’t exceed that amount. That way, you’ll avoid costly interest charges or worse — going into extended debt.
As long as you keep a careful eye on how much you’re spending and understand what will happen if you charge more than what you can comfortably afford, paying bills with a credit card can make your life easier.
Be a rule follower.
The golden rule of credit is to keep the total of your credit card balances to 30 percent of your total credit limit, a.k.a. maintaining low total credit utilization.
For example, perhaps you have one credit card with a $5,000 credit limit and you’ve used $4,000 of that available credit, but you have another card with a $10,000 credit limit and you’ve used just $300 of its available credit. In this instance, your total credit utilization is 29 percent.
Take note: It’s important to not lose sight of your per-card utilization since completely maxing out a credit card is one of the behaviors that can cause your credit score to take a hit.
Have your one and only.
Spreading your bills across multiple credit cards can keep your per-card utilization low. But it also can cause confusion and make paying them a pain. Plus, if you’re not careful, you could lose sight of your financial situation as a whole — namely your total credit utilization.
So stick with just one credit card for bill paying — and be sure to choose the one with the highest limit (to keep your credit utilization ratio in the green) and the best rewards to accumulate even more perks.
Get in the know.
While we’re all familiar with the stack of bills that comes in at the end of the month, not all of them can — or should — be paid with a credit card.
Although housing is usually your biggest expense, don’t expect to be racking up a ton of points by using a credit card to pay for your mortgage or rent. The truth is most mortgage lenders and landlords won’t accept credit cards as payment. Same goes for auto lenders and many health insurance providers. Where was that checkbook again?
Sometimes, taxes can be paid with a credit card, but be aware: fees often apply. Utilities (trash, gas, electric, water, etc.) may also charge a convenience fee when you pay with your credit card. So don’t forget to check the fine print.
Subscribe and swipe (with caution).
What are the easiest bills to pay with a credit card? Short answer: any with recurring charges that you can set up automatic bill pay with. Examples include:
- Subscription services (i.e. Netflix, Spotify, Hulu…)
That said, this reward doesn’t come without risk. Once you set up auto pay, it’s easy to forget about it. You might keep paying for months, but not use the service at all. Or, the price could increase but you fail to recognize it. To prevent this, take five minutes to review your credit card statement each month.
Paying bills is a tedious monthly to-do. Using a credit card can make it less dutiful and more manageable, giving you more time to do fun things, like redeeming your rewards for travel. Or, treat yourself to a spa day by paying with your cashback rewards.
Paying Bills With Your Credit Card Discussion
- What are some of the ways you take advantage of your credit card rewards program?
- When selecting a credit card, how important is the rewards program to you?
- Do you prefer cashback, mileage, or point-based credit card reward programs?