One way of making sure you never miss payments on monthly bills like your gym membership or video streaming service is to get them all automatically paid with your credit card. You can also earn reward points in the process, if your credit card offers that benefit.
Here are some pros and cons of using your credit card to set up automatic payments on monthly bills:
Benefits of paying bills with credit card:
Paying bills and utilities on a credit card helps you
- Earn reward points, if your card offers this benefit
- Never miss monthly payments
- If your utility company reports to the credit bureaus, there is potential to improve your credit score by making regular on-time payments on services.
The potential pitfalls:
Maintaining balance
If you automated your utility bills to be processed through your credit card, it's important to monitor your overall balance and make sure you're paying your credit card bill in full. Be sure to set up a payment plan so that you can have enough funds in your checking account to cover your credit card bill.
Interest rates
If you carry a balance on your credit card from one month to the next, you're adding to the cost of your monthly bills, in the form of interest charged on that credit card balance you couldn't pay off.
And interest charges are no small thing, even if you have a low Annual Percentage Rate (APR). That's because interest charges are added to your balance at the end of every single day, and you'll be charged an interest on that interest from the day before. In other words, the interest on unpaid credit card balances compound, causing your balance to grow in size every day, even when you don't use your card.
Utility fees
It doesn't happen in every state, but be aware that some electric and gas utilities charge a fee for paying your bill off with a credit card.
Should I put bills on my credit card?
Having your monthly bills paid with your credit card automatically can be an excellent use of your access to credit, because it ensures that you're paying your bills on time, and possibly earning reward points in the process.
But it only really works in your favor over the long term, if you make sure that you're paying off your entire credit card balance at the end of each month. If possible, set up automatic payments so that you can keep up with payments each month and make sure to monitor your balance to ensure it does not accumulate to more than you are able to pay off.
