Much like taxes, bills are an inevitable part of life for most adults. Enter the temptation of the credit card.
When tackling bills, it can seem tempting to utilize a credit card to cover monthly bills, but stop right there. Today we’re going to discuss the good, bad and ugly of paying bills with a credit card – and offer a better solution for accessing the money you need.
Can you pay all your bills with a credit card?
Short answer: Yes. Longer answer: Yes, but it’s a bad idea unless you can pay off the charges in full when your credit card bill arrives. While it’s enticing to charge things like utility bills to take full advantage of monthly credit card perks, this only makes sense if you can immediately turn around and pay off the charge on your card. Charging bills is a sure way to start racking up credit card debt fast. Add in high interest rates and you’ve got a recipe for disaster. If you owe on something like income taxes or tuition, reach out to the IRS or university to discuss a payment plan. Often, these institutions have options at rates far lower than what your credit card will be willing to give you. It’s also important to note that as a general rule, you cannot pay a credit bill with another credit card.
How to decide if charging a bill is right for you:
PROS
- You can earn perks. Whether you’re banking air miles or getting cash back, perks are enticing. That’s exactly what they’re designed to do – entice you to make purchases on your credit card. As long as you are paying off your balance in full to avoid interest fees and penalties, these can be an undeniably great part of using a credit card.
- It’s quick & convenient. From setting up automatic online payments to making a payment over the phone, credit cards give you the flexibility to make an instant payment from almost anywhere.
- It’s easy to track your spending. Most credit cards now offer a robust online analysis of your spending habits broken down by category. This can be a helpful tool in evaluating your spending and revising your budget as needed.
CONS
- You might pay today – AND tomorrow. There’s no way around it: interest adds up. If you are running a balance, you are paying interest. The more your debt goes up, the more you pay in interest over time. This can quickly escalate and put you in a financial strain.
- Your credit might take a hit. You should always strive to use less than 30% of your available credit on any card. Once you tip past that 30% mark, you may notice your credit score start to drop. Since bills can be big-ticket payments each month, it’s important to consider how that will impact your credit usage, especially if you’re letting it add up instead of paying it off.
A better alternative: the personal loan.
A personal loan is a great way to get the money you need for bills and build an emergency fund that can cover the cost of unexpected expenses. Unlike credit cards, personal loans have a fixed rate, as well as a set payment amount and date. We report to credit bureaus, so making regular, on-time payments can actually help you build and improve your credit over time.