Credit cards can be a very helpful financial tool, whether you’re in the hole and trying to pay off debt with a balance transfer card or you’ve made it to the 800 club and now you want to start raking in rewards.
However, it’s hard to know when you should and shouldn’t use credit, especially when it comes to bills. Like most things involving credit, there is no simple yes or no answer. Read about the pros and cons of using a credit card to pay your bills, and then you’ll find a breakdown according to different types of bills.
The Benefits of Using a Credit Card to Pay Your Bills
The convenience of automatic payments.
Automating your finances is one of the first steps on the road to financial success. Credit cards are a great tool for helping you do this because they allow you to set up automatic payments. Set up your utilities, internet bill, and phone bill to be automatically paid by your credit card a few days before the due date, and then set up automatic payments to your credit card to make sure it always gets paid off on time.
Avoid writing checks.
Having to stock up on check books, write a check each month, and make sure you always have envelopes and stamps on hand can be a pain. Everything is going paperless, and setting up your finances the same way makes your life a little bit easier.
Rack up rewards.
If you’ve got a credit card that offers great travel rewards or cash back offers, paying large, regular bills with that credit card can help you build up rewards much faster. With the Chase Sapphire Preferred, for example, making an $800 rent or mortgage payment every month would get you $745 in rewards by the end of your first year. That’s not including other spending.
Build your credit score.
If you want to build your credit score using a credit card, putting a large, regular purchase that you can easily pay off in full right away, such as a bill, is one of the best ways to gradually increase your score.
The Drawbacks of Using a Credit Card to Pay Your Bills
The risk of going into debt.
Unless you have a squeaky clean track record when it comes to credit card spending, putting bills on your credit card can be a slippery slope. Many people will be tempted not to pay off their credit card bill in full each month in order to have extra money in the bank. This is a very bad financial move as it just causes you to rack up debt and waste money on interest fees.
You may have to pay extra fees.
Paying some bills with a credit card may incur extra fees. If this is the case, there is generally no benefit great enough to outweigh the cost of these fees, making it not worth your while to pay with a credit card. Double check the fine print or speak with your bill provider to make sure that using a credit card won’t rack up extra charges.
High interest rates.
Generally speaking, credit cards have very high interest rates. If you’re in a tough spot and can’t make ends meet when it comes time to pay your bills, make sure you weigh your options. There are usually better rates out there for financing, such as taking out a personal loan. That being said, there are some cards out there that with financing offers, such as a 0% promotional APR. But be careful, if you don’t pay it off before the promotional period ends, your debt can spiral out of control.
Deciding whether or not to pay your bills with a credit card will also vary depending on the type of bill you are paying.
Paying Rent With Your Credit Card: No
There are websites that let you pay your rent or mortgage with a credit card, such as Williampaid and RadPad. However, most or all of these options charge a fee for using a credit card. If your landlord offers you a method for paying rent with a credit card fee-free, go for it. Otherwise, only do this as a last resort.
Paying Student Loans With Your Credit Card: Maybe
Credit cards have much higher interest rates than student loans, so this is not a wise idea unless you plan to pay off the credit card in full. Also, many student loan lenders will not accept credit card payments. However, if your provider allows you to make student loan payments with a credit card and doesn’t charge a fee, this can be a good way to build credit and cash back rewards (which can also go toward your student loans).
Paying Utilities With Your Credit Card: Yes
Electric, gas, and water bills as well as internet, cable, and phone bills are some of the easiest to pay with a credit card. Most providers will allow you to set up automatic payments online and most will accept credit cards without charging a fee.
Paying Car Payments With Your Credit Card: No
Like student loans, auto loans typically have a much lower interest rate than credit cards, so it’s not a good idea to use your credit card if you plan to carry a balance. Most auto loan providers won’t accept credit cards as a form of payment either, so you’d either have to pay via cash advance, which will rack up sky high interest fees, or balance transfer, which will usually rack up fees as well.
In some cases, transferring your auto loan to a 0% APR balance transfer card and paying it offer in full before the introductory period ends can be a smart way to pay off your car interest-free. However, it’s important to note that this changes the nature of your debt (from an installment loan to credit card debt), and this can lower your credit score.
Paying Car and Health Insurance With Your Credit Card: Yes
Nowadays, most health insurance and car insurance providers will accept credit cards as a form of payment. If they don’t charge a fee, this is another good bill to put on your credit card to build up regular monthly spending. Another trick: many insurance providers offer a discount if you pay 12 months of premiums in advance. If the discount is good, you could open a 0% APR credit card with a promotional period of more than 12 months and put the year’s premiums on your credit card. Just make sure you pay it off!