Debit and credit cards make it easy to pay for things when you’re out and about, so how about using them to pay the bills (like utilities, tuition, taxes, and so on)? It’s certainly an option in many cases. But before diving in, you’ll want to know about the pros and cons of paying bills with plastic.
How to Set Up Payments
Paying with plastic is just a matter of setting things up. In most cases you’ll do this online with whoever you are paying (your service provider, phone company, etc.).
An easy way to do it is log into your account and look for options to “make a payment” or “set up automatic payments.” From there, you’ll enter your card number and agree to automatic billing.
There are also old-fashioned ways to pay some bills with your credit card. For example, a medical office might send a bill that offers several payment options: in addition to sending a check, you can call and provide your card information over the phone, or you can write your card information on the payment slip and mail it back. Using the phone is obviously a good option if you’re coming up on the payment’s Due Date.
Whatever method you use, be prepared to provide the following:
- The card number
- Your billing address for the card
- Your name as shown on the card
- The card’s expiration date
- The 3 digit security code on the back of the card
What Could Go Wrong?
Is there any reason not to use cards for your bills?
There are certainly a few things to watch out for.
Debt: if you’re using a credit card, going into debt is a real risk. Your bills will add up on your credit card while your checking account balance will appear high. If you don’t have the discipline to pay the card off in full every month, you’ll end up in debt.
If you think that’s a risk, keep doing it the old-fashioned way (there’s nothing wrong with that – all that matters is that you know yourself and keep yourself out of harm’s way). Racking up debt means high interest charges, and you might end up in a hole that you can’t get out of.
Credit scores: you might want to pay off those credit cards more often than every month to avoid damaging your credit. Credit scoring models give higher scores when you use a relatively small percentage (30% at the most) of your total available credit. If you use too much – even if you pay the balance in full every month – it can look like you’re getting in over your head. So be sure to pay down your balances any time you approach 30% (for example, if your credit limit is $1000, you’ll want to keep your balance below $300); that might mean making several payments per month.
Fees: in many cases, there are no additional fees when you pay bills with plastic. But some organizations charge extra, so you’ll want to pay attention. If you use a credit card, you might also pay an annual fee – make sure it’s really worth it if you’re doing this for the rewards.
Losing control: when you pay with a debit or credit card (especially if you make the payments automatic), things can get out of control without you realizing it.
You might stop paying attention to your bills and miss expensive errors or rate increases. If you use a debit card, there’s a better chance that you’ll bounce a few checks or owe overdraft fees. Finally, you might simply feel less of the pain of spending, which makes it easy to overspend.
Why Use Plastic?
Given the risks above, you might wonder if it’s a good idea to pay bills with your card, but there are several benefits.
Rewards: rewards often the first reason people think about paying bills with a credit card. Sure, you might rack up points or earn cash back, but there are other good reasons as well. Even if you use debit cards (which are less generous, but can still offer rewards), it still might be a good idea to put bills on your card.
Convenience: there’s no need to wait on the mail, write checks, find a stamp, or even log into your bank account’s online bill payment system.
If you deal with paper at all, you might write down your credit card information and mail it in, but at least you won’t use up your supply of checks. The easiest approach is to make payments automatic so you don’t have to do anything – but this can cause problems (see above).
Easy recordkeeping: along similar lines, it’s easy to keep track of expenses when you pay with a credit card. You’ve instantly got an electronic record of every transaction, so it’s easy to categorize and see where your money goes. Your bank (or an app like Mint) might even automate that process for you.
Manage cash flow: how many bills do you get each month? If it’s more than a handful, life might be easier if you pay with a credit card. There’s no need to log in to your checking account every time a bill comes due to make sure there’s enough available – you can just put all your bills on your credit card and then make one large payment every month (if you use a debit card you will need to make sure funds are available).