Weigh the pros and cons of using a credit card for bill payments.
There are plenty of reasons to consider using your credit card for bills, including convenience, easy cash flow management and the ability to earn points and rewards. However, it doesn’t come without its costs.
Here’s everything you need to know before deciding whether to pay your bills on plastic.
How to pay your bills with a credit card
There are two main ways you can use your credit card to pay bills: autopay and one-time payments.
Bills that are charged at a set time each week, month or year can usually be set up as an autopay from your credit card account. This could include your mortgage payments, insurance premiums, home utility services, gym membership, Internet and other subscriptions for entertainment services like Netflix.
How do you set up an autopay with your credit card?
- Find out if there is an autopay option through your service provider.
- Provide your chosen credit card account details.
- Confirm the details and authorize the autopay agreement.
What are the key factors to consider when using autopay to pay bills?
- Autopay fees. Some service providers may charge a fee, but most prefer that you set up autopayment and have made this a fee-free mode of payment.
- Declined payment. You could be charged fees twice – once by the service provider and once by your credit card provider.
- Overdraft fees. The card provider might choose to honor the autopayment and may charge you an overdraft fee and default interest.
- Interest charges. The autopayment will be subject to interest fees if you carry a balance or if there is no interest-free period on your card.
- Cancelled subscriptions. If you cancel a subscription or wish to stop the autopayments, you’ll have to contact both your bank and service provider to ensure that you don’t get charged any fees.
2. One-time payments
One-time bill payments allow you to pay as you go and can be convenient for charges that vary in amounts or are less regular. You might choose to use your credit card to make a one-time payment on your tax bill or for paying off your car repairs in the same way you’d make a regular credit card payment.
What are the key factors to consider when using one-time credit card payments to pay bills?
- Card acceptance. Some businesses may limit the type of cards that they accept or prefer cold hard cash.
- Cash advance transactions. Some bill payments may be treated as cash advances if the business you are trying to pay isn’t setup to accept credit card payments. Your card provider will process the payment as a cash advance and charge you the cash advance interest rate and a cash advance fee.
- Credit card surcharges. Service providers may charge a small percentage fee of your bill for paying with your credit card.
- Interest charges. If the business accepts credit card payments, the transaction will be typically treated as purchase. This means you can enjoy an interest-free period as per all purchase transactions.
Earning rewards for paying your bills with a credit card
When it comes to the perks of paying your bills with a credit card, we find that it’s usually more about the rewards points than anything else. The restricting and limiting of points can vary significantly between credit cards, so refer to your credit card’s terms and conditions or contact your issuer before making a payment to earn rewards.
Most of the time, the relevant clause pertains to “eligible transactions”, where they state whether or not such a transaction is eligible for earning rewards points. Note that this is not usually the case for other types of bills, such as subscriptions to the gym.
What are the credit cards that earn points for utility payments?
On the bright side, there are a few credit cards that do let you earn points on such payments. One option is:
This card earns two reward points for every dollar spent on these types of transactions.
Earning credit card rewards while making bill payments
Let’s look at Annie’s monthly expenses and how she can earn rewards for her regular bill payments:
- Entertainment streaming service: $9.99 per month ($119.88 per year)
- Gym membership: $80 per month ($960 per year)
- Health insurance: $400 per month ($4,800 per year)
- Telecommunications: $200 per month ($2,400 per year)
- Electricity: $500 per quarter ($2,000 per year)
She decides to get the Wyndham Rewards® Visa® Card, which earns two points per dollar spent on gas, utilities and groceries and one point on everything else. After checking and learning that there are no fees involved, Annie sets up all her above payments as an autopayment from this account.
Over a year, Annie earns:
- Entertainment streaming service: 119 points
- Gym membership: 960 points
- Health insurance: 4,800 points
- Telecommunications: 4,400 points
- Electricity: 4,000 points
Total: 14,279 points per year
Annie can exchange these points for gift cards, merchandise or a cash credit.
While autopayments can be a cost-effective and convenient way to schedule and manage cash flow, be sure to check for hidden and potential fees that may bite you later on. Using your credit card to pay for regular expenses can also be an efficient way to maximize rewards earnings.
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To make sure it’s the right option for you, you should do your research and weigh up the costs and benefits before deciding if this is your best option.