Is It Smart to Pay Bills with Your Credit Card?

Sitting down with your checkbook and a book of stamps to pay bills is becoming less common. Not only are an increasing number of people paying bills online through their bank or the biller's website, more people are also choosing to pay bills with credit cards rather than direct debit from a checking or savings account. Before you decide to pay your bills with a credit card, it's a good idea to consider the pros and cons.

The Pros

• It's quick, convenient, and you can do it almost anywhere. Once you've used your credit card online to pay a bill, most websites allow you to securely store your payment information so you don't have to re-enter it next time. You can also set up automatic credit card payments to avoid late payments and interest charges. Most companies accept credit card payments for bills online and over the phone, so you can pay bills when and where it's most convenient.
• You can earn cash back or other rewards. If your credit card pays you cash back or gives you rewards points or miles whenever you use it, paying bills can help you earn more cash or rewards. Check to see if your credit card offers these rewards and how big the reward is. While many credit card issuers only offer 1% back, some offer up to 5%, so if you choose to pay bills with a credit card to get cash back, choose the card you use wisely.
• Tracking your spending is easy. Many credit card companies provide you with free reports that divide your charges into spending categories. That can be a helpful budgeting tool, tracking how much you're spending on bills like insurance, phone, cable, and internet service, utilities, and more.

The Cons

• You could end up paying more. If you do not pay off your credit card bill on time and in full every month, you will be paying your bills plus any interest that accrues, which can cost you significantly more in the long run. In addition, some billers charge you a fee to pay with a credit card. In some cases, it's only a few dollars, but in others it's a percentage of the amount you charge. The bigger your charge, the higher the fee that's tacked on.
• You could see a negative effect on your credit score. Adding your bills on top of the purchases you've already made could bring you too close to your credit limit, which in turn can have a negative impact on your credit score. You should strive to use less than 30% of your available credit on any card. For example, if your credit limit is $2,000, try not to use more than $600 of that available credit.

Don't pay huge bills with credit. Unless you can pay off your charges in full when the bill is due, it's not considered wise to pay big bills like income taxes or tuition with a credit card. A better option is to talk with the IRS and arrange a payment plan, which is usually at a lower interest rate than credit cards. For tuition, ask about tuition installment plans that are available at most schools.