Should You Pay Your Bills With Credit Cards?
Paying a bill with a credit card can, at first glance, seem counterintuitive. After all, you’re satisfying one debt by creating another. However, there are quite a few good reasons to pay monthly bills with plastic when you can.
By doing so, you can earn rewards on your favorite cash back card, simply by spending on the bills you’d have to pay anyway. No one likes paying the auto insurance bill, so why not get 2% back in the process?
You can also give yourself added protections when you pay certain bills with certain card products. These card benefits can save you quite a bit of money if, say, your purchase were to be lost, stolen, damaged, or even defective.
With that said, here are the most common monthly bills, and whether or not paying for them with credit is a good idea.
Your Cable/Internet Bill – You probably won’t get any added protections by paying the invoice for your high-speed internet with a credit card. However, you can still earn some nice rewards.
By using a card that earns 1 or 2% on everyday purchases, like the Citi Double Cash, you’ll essentially give yourself a 2% discount every month. This doesn’t sound like much, I know. However, if your bill is $150 a month, that’s a free $36 earned by the end of the year. Plus, most cable and internet providers will take credit card payments without fee.
Your Cell Phone Bill – This is actually one of the best bills to pay on a credit card. By doing so, you can actually protect your phone against theft, damage, or loss, without having to pay a monthly insurance fee to your carrier.
Many credit cards offer cell protection when you pay for your monthly service (and/or your phone purchase) with their card. Be sure to read the fine print for your unique card product to see what applies, but it’s a feature that’s definitely worth having.
Plus, you’ll still earn rewards on top of that. My family currently pays about $240 a month for service; this nets me almost $58 more a year when using a 2% cash back card.
Insurance Premiums (Health, Auto, Home) – Many insurance companies will let you pay your premiums each month using a credit card. As long as you’re not overspending – getting yourself in a situation where you can’t pay your statement or future premiums, resulting in a lapse of coverage – there’s nothing wrong with using plastic.
While there’s no explicit benefit to paying premiums with a card, you will still earn rewards, can snag yourself a few extra weeks to cover the cost, and usually don’t have to pay a processing fee. If your premiums are anywhere near the national averages, this could be a pretty penny in free cash back each year.
Utilities – Monthly bills such as electric, water, gas, and trash services can be a bit tricky when it comes to credit card payments. Many of these services are run by municipalities, so they worry about operating expenses more than most… card processing fees included.
This means that they are likely to charge credit card payment processing fees if you choose not to pay with cash, check, or ACH. These fees can range from about 1-3%, which could easily dwarf any rewards you would have earned.
If your utilities cannot be paid without incurring added fees, it’s usually not worth the trouble.
Mortgage/Rent – Man, if I could only pay my mortgage each month with a credit card. Even at only 1% back, we are talking about earning hundreds of dollars a year in rewards.
Alas, it’s almost impossible to find a mortgage lender (or rental management company) that will accept a credit card payment without a significant fee. Many of them won’t accept credit cards at all!
If you’re trying to meet a high minimum spend for a card’s introductory bonus, companies like Plastiq can help you pay your rent or mortgage with a credit card. However, they still charge a fee to do so (usually 3%). This likely cancels out, or exceeds, your cash back earned. However, if that added spend is the only way to earn a significant sign-up bonus, it might be worth the cost to you.
If you’re considering using a credit card for even your monthly bills, just be sure that it’s worth the trouble. Some companies will charge you extra fees for card payments, cancelling out any rewards earned; others won’t accept plastic payments at all.
If you aren’t paying your card statement in full each month, though, or don’t have enough available credit to keep your utilization at a reasonable level, then stick to cash or check. After all, using a credit card for monthly expenses doesn’t make sense if it cost you money or your credit score.