There can be real advantages to paying bills with a credit card. You may be able to gain rewards or perks, and automatic payment systems can help you stay up to date no matter how busy or distracted you are.
There are also risks to paying bills with a credit card, especially if you’re running up large balances or using your card because you can’t afford to pay cash.
Some creditors may not accept credit cards or may charge a processing fee. If your credit card balance is creeping up toward your credit limit or if you aren’t sure you can pay your balance in full every month, it may be better not to use your card.
In many cases, you’ll end up paying some bills with your credit card and some with your checking account. Understanding the advantages and disadvantages of each will help you make the right choice for each bill.
What Bills Can I Pay with a Credit Card?
Before you decide what bills you want to pay with a credit card, see which creditors give you the option of making credit card payments. Always check for convenience fees or processing fees that go with credit card payments.
There are some types of bills that usually allow credit card payments.
- Mobile Phone Providers
- Cable and Internet Providers
- Subscription Services
Other types of creditors usually do not allow credit card payments or tend to charge fees for credit card payments, though there may be exceptions. It’s always worth checking your creditor’s policies.
- Student Loan Providers
- Mortgage Loan Providers
- Auto Lenders
- Insurance Companies
- The IRS and State Tax Agencies
Once you know what bills you can pay with a credit card, you can start thinking about what bills you should pay with a credit card.
Why Pay Bills with a Credit Card?
There are several significant advantages that you can gain from paying bills with a credit card.
- Convenience. A credit card is almost always the easiest way to pay any bill. You can usually pay online or by phone. If you’re at home or traveling you can pay bills in minutes without stress.
- Ensuring on-time payments. Many credit cards let you set up automated payments. Your bills will be paid automatically, and you won’t have to worry about forgetting. Automatic payment systems are a great way for busy, distracted, or absent-minded people to assure on-time payments.
- Credit card bonuses and rewards. If your card provides rewards for spending on recurring bills you may be able to pile up significant rewards. If your card offers a bonus for spending over a certain amount using your card to pay bills can help you reach that level by spending money you’d have to spend anyway. Just be sure to keep your balance below 30% of your credit limit.
- Easy expense tracking. If you have several cards, consider using one card just for paying bills. Try to use a card with high rewards and a fairly high credit limit. Your statements will give you a running record of all your bill payments.
- Consumer and fraud protection. Checks can be stolen in the mail, and debit cards can be compromised. Credit cards offer more extensive and user-friendly fraud protection than any other form of payment.
- Build your credit history. If you don’t normally use a credit card, using one to pay a few bills each month can help you establish a good payment record. Getting a credit card and using it to cover a few recurring payments every month is a great way to build your credit history.
- Delayed payments if you are under financial stress. If a bill arrives and you don’t have the money to pay for it a credit card can allow you to delay the payment. You won’t want to do this often, but in an emergency, it can be very useful.
You will have to weigh these advantages against the risks of using a credit card to pay bills. If you do choose to pay bills with a credit card, that doesn’t mean the cash in your checking account that you would have used to pay that bill is free to spend. You’ll need it when your card statement comes!
When Should You Not Pay Bills with Your Credit Card?
There are times when it is not a good idea to use a credit card to pay bills.
- Your credit utilization is high. Credit utilization is the percentage of your available credit that you use. If your credit card balance goes above 30% of your credit limit your credit health could be affected. Making payments on your card twice a month can help you keep your credit utilization low.
- You are not sure that you can pay your balance in full each month. If you are not able to pay your balance in full the cost of those bills will be rolled over to your next statement and you will pay interest. The interest cost will probably be greater than any benefit you got from using your card.
- You are regularly using a credit card to pay bills because you can’t pay them in cash. If you’re using a credit card because you’re struggling to make payments or don’t have the cash to pay your bills you may be in serious financial trouble. You may wish to review your spending and finances before your debts get out of hand.
- You are using credit card convenience checks. Many credit card issuers provide cardholders with convenience checks, but you should avoid using these whenever possible. They may be treated as cash advances, with a high-interest rate that begins accruing immediately.
- You don’t have an emergency fund. An emergency fund helps you cope with unexpected costs that could leave you unable to pay your credit card balances. If you don’t have one, a sudden problem could leave you unable to pay those credit card balances.
- You have to pay a fee to use your credit card. It’s generally not a good idea to use your credit card to pay bills that charge a fee for using a card. The fees generally outweigh the benefits of using a card.
If you’re under financial pressure, there’s always a temptation to put a bill on your card and delay payment. That can quickly run up a large debt at a very high-interest rate. If you’re struggling, it’s better to seek credit counseling and change your spending habits as soon as possible. Trying to dig your way out of debt with a credit card can easily make the problem worse.
When to Use a Checking Account to Pay Bills
There are some bills you will have to pay with your checking account. The creditors either will not accept credit card payments or charge high fees for them. If you are worried about on-time payments or check security, look into setting up automatic payments from your checking account.
Some creditors may provide discounts for cash payments. If your creditors are willing to provide a discount for cash payments, there’s little reason to use a card.
If you’re not sure you have the discipline or the means to hold your credit card balance below 30% of your credit limit or pay your balance in full each month, you may prefer to pay bills with the cash you have on hand.
Using a credit card to pay bills is convenient and secure. It may help you gain rewards and build your credit history.
Using a credit card to pay bills also carries potential risks. You could raise your credit utilization, which could harm your credit. You could also end up carrying higher balances from month to month, which could leave you with high-interest costs.
Both credit cards and checking accounts are useful and viable ways to pay bills. You will have to assess your bills, your finances, and your habits to decide which method you want to use to pay each bill.