Credit cards can be an extraordinary personal finance tool for many reasons. Is paying by credit card one of the best things to do? Your recurring monthly bills.
But this approach has its good and bad sides. The secret lies in choosing the right expenses to cover with your credit card and knowing which ones to avoid.
Pros and cons of paying bills by credit card
When it comes to using your credit card to pay your bills, there’s no one-size-fits-all scenario; Ultimately, it depends on your financial discipline.
If you can pay your credit card debt in full and on time every month, you can avoid many negativities. Otherwise, they may become a problem in the future.
Continue using your revolving credit easily: Paying recurring bills with a credit card means consistent use over time, which can increase your score. Credit bureaus want to see revolving credit use. This means you use your credit, pay it off, and repeat to prove that you know how to handle money responsibly. Those who achieve this are often rewarded with higher limits, more credit allocations, and better credit terms for other financing.
A big cash back reward enhancer can be: Paying your bills with your credit card can be a low-leverage way to earn generous rewards on the money you’ve already spent.
Purchase protection in case your information is stolen: While credit cards have very good protection conditions for cardholders, other payment methods (cash, debit card, etc.) lack the same level of protection. This is another reason why credit cards are an asset.
Major fees: Depending on the service you pay for, there is sometimes a “convenience fee” for using a credit card instead of direct debit. Check your credit card before giving it as payment.
Interest charges if you have a balance: Since some recurring bills can be larger, this means interest charges will hurt much more. If you plan to pay a bill and maintain a balance on your credit card, expect to see interest charged each billing cycle.
It may encourage overspending by: There’s something about not seeing a tangible cash replacement that could make using a credit card much easier. Then, when you get your bill, it can be disconcerting to see the actual cost only by the amount you noted in your mind as you swiped.
Which bills can I pay with a credit card?
If the service provider allows credit card payments, you can pay for this service by credit card. Be aware of additional credit card fees you may be charged if you use a credit card instead of cash.
7 things you can pay with a credit card
You will quickly find that most major household expenses cannot be charged to a credit card due to the very high fees added to the expense. But there are still many common monthly expenses you can pay that will earn you rewards and improve your credit.
Subscriptions and streaming services: One of the hardest hanging fruit to set and forget is your little subscriptions like Netflix, Hulu, Magazines, grocery deliveries, etc.
Internet and phone providers: Set up and autopay for your mobile phone and internet provider as they are likely hosted by the same provider.
Insurance: Insurance is (usually) in the mid-range on the list of household expenses; so this is a great example of a consistent bill that you can and should pay by credit card.
Health expenses: For some, these are one-time hospital visits that insurance only partially covers, and for others, they are recurring for specific medical needs.
Childcare: Surprisingly, some child care facilities accept credit card payments without any fees attached.
Taxes: The IRS accepts third-party credit card payments for a fee.
Other home services: Lawn care, pool maintenance and plumbing services you use regularly may also be reviewed for allowable payment methods.
4 things you can’t pay with a credit card
Mortgage: Many lenders do not allow homeowners to pay their monthly mortgages by credit card due to high processing fees and the risk that consumers accumulate unsustainable debt.
Rent: While some rental agencies or landlords accept credit cards, many prefer checks, direct deposits, or electronic transfers due to the processing fees associated with credit card payments. Using a card may sometimes require additional fees for the tenant.
Other credit cards: It is usually not possible to pay off one credit card directly with another. Doing so will simply shift your debt from one card to another, potentially increasing your interest rate and other associated fees. Balance transfer options are available, but they have their own rules and transfer fees.
Vehicle loans (financed vehicles): Similar to mortgages, most auto loan lenders do not allow monthly car payments to be made with credit cards. The main reasons for this are processing fees and the risk of borrowers increasing their total debt without a guaranteed way to pay it off.
3 tips for paying bills with a credit card
Pay your credit card bill in full and on time: It cannot be emphasized enough here. One of the main benefits of using a credit card is the potential to earn rewards and improve your credit score. But if you maintain balance and your interest increases, these benefits fade quickly.
Use your highest level rewards credit card To maximize your earnings: If you have more than one credit card, consider using the card that offers the best rewards or cash back for the type of bill you pay. For example, if a card offers a higher cash back percentage on utilities, use that card for your utility bills. This strategy helps you earn more for every dollar you spend.
Set up automatic payments: Consider setting up automatic payments to make sure you don’t miss any bill payments. Many service providers and credit card companies offer this feature. Make sure you always have enough money in your linked account to cover the direct debit.
Is it better to pay my credit card on or before the due date?
This is personal preference, but bringing it close will not do you any good. Paying before the due date takes something extra off your plate.
Does paying your credit card bill early affect your credit score?
No. It only affects your credit usage. If you’re trying to improve your credit score, the bureaus focus on on-time payments and payment usage. So it won’t matter if you pay weekly or biweekly as long as it’s within the payment window.
Should you pay by credit card before or after interest payments?
Even if you can’t pay the full balance, always aim to pay before interest increases. Interest is charged on the balance at the end of the billing cycle, so the lower your balance, the less interest you pay.
Example: If you charged $5,000 to your credit card and only paid $2,500, interest is charged only on the remaining balance ($2,500).
What is the minimum payment amount on credit cards?
Minimum payment is the mandatory minimum amount (smallest amount) you must pay on your credit card bill.
It is calculated as a percentage of your statement balance. Every card issuer has a different percentage, but not paying the minimum can result in large late fees, late interest charges, and a mark on your credit report that can’t be easily removed.
Can I pay my student loans by credit card?
Yes, there are several student loan providers that allow credit card payments. But there are many people who don’t do this. Read the fine print or call them to double-check.
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. Details of financial products, including card rates and fees, are accurate at the time of publication. All products or services are offered without warranty. Check the bank’s website for the most up-to-date information. This site does not contain all offers currently available.