These days, it seems like most people pay bills online through their bank or their biller's website or on their phone. And nowadays more and more people are paying these bills with credit cards rather than direct debit from a checking or savings account. Let’s look at when and where is the best time to pay a bill with your credit card .
Can you pay all your bills with a credit card?
Yes, but it’s not a good idea to pay huge bills with credit cards. 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.
Can you pay utility bills with a credit card?
Yes, most electric, gas, water and trash removal companies allow customers to pay by credit card. Some charge a small convenience fee for this option, while others don’t. Paying your utility bill with a credit card could be a smart option if you carry a rewards credit card. It’s an easy way to earn steady points on an expense you’re already paying for. Just be sure to pay your credit card balance in full every month. Otherwise, you could end up paying a lot in interest.1
Can you use a credit card to pay for another credit card bill?
The short answer is no. Typically, you cannot pay off one form of credit with another. Does paying bills with a credit card count as a purchase? Yes. With most credit cards, the only transactions that do not count as purchases (for the sake of earning rewards points, for example) are balance transfers, cash advances and using convenience checks.2
So, should you pay bills with a credit card?
Before you decide, 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.
Make the best decision for you
Everyone’s financial situation is different. If you’re able to pay off the charges quickly, using your credit card to pay bills may not be an issue. However, if you let the charges add up month after month, it may not be your best option.
1. Source: CreditCards.com
2. Source: CreditCards.com
*This article has been updated from its original posting in January, 2014
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