Should You Pay Your Utility Bill with a Credit Card?

Paying your monthly utility bills like electricity, gas, water, internet, cable TV, and phone with a credit card can seem appealing After all, who doesn’t like earning rewards and cashback on their spending? However, this strategy comes with some major drawbacks that you need to consider before whipping out the plastic to cover your next power bill

The Potential Benefits

Let’s start by looking at why some people choose to pay utility bills with a credit card:

Earn Rewards

A lot of credit cards have great rewards programs that let you get points, miles, or cash back on the things you buy. Depending on the card, you may earn 1-5% back on utility payments. Over time, this can add up to hundreds of dollars in rewards.

Build Credit

Making on-time payments can help build your credit score. Utility payments that show up on your credit card bill show that you have a good history of paying your bills on time.

Float Your Bill

Paying with a credit card may allow you to float the payment for a few weeks until the statement is due This gives you more time to pay

Protection

Credit cards offer stronger consumer protections than debit cards or checks. You can dispute fraudulent charges or billing errors.

Convenience

Setting up autopay through your credit card company can ensure utility bills are always paid on time. One less thing to remember each month!

The Drawbacks

However, there are some significant reasons why paying utilities with a credit card may not be the best idea:

Convenience Fees

The biggest problem is that many utility companies charge fees to accept credit cards, which can be anywhere from 1. 5% to 5% of the bill. These fees can eat up any rewards you earn.

Forget to Pay

It’s easy to miss a credit card payment, since statements aren’t always due at the same time each month. Late fees and interest charges add up quickly.

Overspending

When you float the payment on your card, it’s tempting to overspend and carry a balance month to month, accruing interest charges.

Extra Steps

You have to take the time to manually pay each utility bill with your credit card every month. Autopay can make this easier but doesn’t work for every company.

Credit Limit

Large utility bills can use a substantial chunk of your available credit, which negatively affects your credit utilization ratio.

Cash Flow Issues

Pushing payments to the credit card due date means you aren’t matching expenses to income flow. Can make budgeting more challenging.

Tips for Paying Utility Bills with a Credit Card

If you do opt to pay utilities with a credit card, here are some tips to make it work:

• Call utility companies first – Ask if they charge a fee for credit card payments and how much it is. Factor this into your calculations.

• Pick the right card – Choose a card that offers high rewards in categories that match your highest spending.

• Do the math – Calculate estimated rewards versus fees over a year. Be sure rewards outweigh extra costs.

• Set payment reminders – Mark your calendar so you remember when credit card bills are due to avoid late fees.

• Automate payments – Set up autopay through your credit card website so bills are paid on time.

• Pay in full – Don’t carry a balance and accrue interest charges. Save up to pay the statement balance monthly.

• Mind your credit limit – Keep an eye on your spending so utility bills don’t tap out your available credit.

• Match expenses to income – If you float payments on your card, be sure you have the cash to pay when the statement is due.

Alternatives to Paying Utilities with a Credit Card

If the costs outweigh the benefits in your situation, here are a few other options:

• Use a debit card – Debit card payments avoid credit card fees but still allow autopay convenience.

• Pay via check – Most utility companies accept mailed check payments with no processing fees.

• Pay cash at an authorized payment center – Take your bill to a nearby grocery store or check cashing outlet to pay in cash.

• Enroll in budget billing – This allows you to pay a fixed amount each month, avoiding spikes when usage rises.

• Apply for financial assistance – Some utilities offer programs to help lower-income families struggling with bills.

The Bottom Line

Paying utility bills with credit cards can be rewarding but may cost you more than you earn depending on fees. Take time to weigh the pros and cons. Compare costs to potential rewards over the course of a year. Set up autopay and payment alerts to avoid late charges. Only pay with a credit card if it makes financial sense for your situation. With the right approach, utility payments could earn you some easy rewards points!