Pros and Cons of Paying Bills with Your Credit Card

At some point in time, it probably crossed your mind: “Why don’t I pay my bills with a credit card"?” There are pros and cons of this strategy that you should know before deciding if it’s right for you.

There are certain advantages, as well as disadvantages, that come with paying all your bills with a credit card. We’ll weigh the pros against the cons to help you determine if it’s the right decision for you. The goal is to determine whether it’s financially prudent to use credit cards for day-to-day payments or not.

The Benefits of Paying Bills with Your Credit Card

When you pay everyday bills with your credit card, you stand to enjoy some (or all) of the following benefits:

You Earn Rewards for Making Payments

Most credit cards allow users earn rewards for making payments. When you use your card regularly at gas stations, restaurants, hotels and grocery stores, you stand to earn sizable rewards that include discounts, free nights at hotels and cash back.

Credit cards also offer sign-up bonuses that reward frequent usage. For example, the Chase Sapphire Preferred Card rewards users with up to $750 if they spend $4,000 within 3 months of opening an account.

Break Down Big Payments Into Smaller Ones

Rather than shell out $1500 from your checking account for a new laptop, you can pay with your credit card and spread the cost over a couple of months. This isn’t always a smart financial move (we’ll discuss later on), but sometimes, there are advantages to being able to pay off a big purchase over time.

Handle Emergency Expenses Easily

Speaking of paying off big purchases over months, credit cards often come in handy for emergency expenses. Yes, you should have a fallback fund in case of medical emergencies, a lengthy layoff or other such unexpected situations. This may not always be possible, and expenses sometimes arise that threaten to empty your accounts.

If you pay off emergency expenses from your checking or savings account, the money is gone permanently. With a credit card, however, you can offset the impact of the bill over months. This is better than disrupting your present finances.

Build a Solid Credit History

Using your credit card to make regular purchases and paying off your balance promptly helps you build up a good credit history. A good credit score helps you get loans (and credit cards) at good interest rates and get approved for good apartments. Sometimes, it helps people secure good jobs.

It signals to lenders, property owners and potential employers that you’re responsible with your finances and therefore, creditworthy.

Paying Bills With a Credit Card is Quite Convenient

An underrated benefit of paying bills with credit cards is the simplicity. You can pay vendors in different states within minutes and without having to leave the comfort of your home. You don’t have to write checks and afterward, mail them; paying bills with a credit card saves time.

Additionally, paying all your bills with one card makes it easier to track month-to-month expenses.

Reasons Why You Shouldn’t Use Credit Cards to Pay Bills

There are some disadvantages to paying all (or most of) your bills with your credit card. Some of the biggest ones are highlighted below:

Interest Is Charged on All Payments

While you earn rewards for regular usage, bear in mind that all purchases made with your credit card attract interest. The average credit card charges APR between 14% to 24%.

If you pay off your balance every month, the interest charged is often negligible. However it becomes more significant if you carry big balances over several months or miss payments.

Credit Cards Encourage Overspending

Studies have shown that people find it easier to spend when they are paying with a credit card as opposed to paying cash or writing a check. Something about not ascribing the appropriate dollar value to swiping a card. This, combined with the promise of rewards often pushes cardholders to buy items they do not need.

Oftentimes, people do not realize that they have run up such a big balance until they go through their statements.

On another note, while it’s often convenient to settle a big purchase with your credit card and gradually pay it off, bear in mind that the longer you take to repay, the more you’ll end up paying.

Late Payments Attract Extra Fees and Penalties

Once you start using your card to make regular purchases, you increase the likelihood of overspending. When you overspend, it becomes more difficult to make your monthly payments.

If you miss one payment or pay late, a penalty fee is added to your balance. After several missed payments, however, in addition to the gradually increasing late fees, a penalty APR (as high as 29.99%) is applied to your account. If your card has an Intro APR offer, you forfeit it once you miss a payment. Here’s a more detailed look into what happens when you miss a credit card payment.

High Credit Utilization Affects Your Credit Score

Your credit utilization rate compares your average monthly balance to your credit limit. If your card has a $5,000 limit, your monthly balance should never exceed $1,500.

This shows the card provider that you don’t depend on your card to survive. If your utilization is over 30% or you max out your card regularly, it affects your credit score negatively. Using your credit card to pay everyday bills is an easy way to over-utilize it.

It Damages Your Credit Score

Regular usage has the potential to damage your credit score similarly to how it builds it up. Which way your score goes depends on how smart you are with your finances. If you max out your card frequently, make late payments or miss payments entirely, it won’t be long before your score is completely damaged.

So in a nutshell, is it good or bad to pay your bills with your credit card? The answer varies on a person-to-person basis. If you decide to use your credit card like a debit card, there are some guidelines to follow. One, if you’re paying a bill with your credit card, have enough funds to repay the balance in your checking account. Two, never miss monthly payments and always pay in full. Finally, never use your credit card to pay bills that you can’t otherwise afford.