Paying Monthly Bills with a Rewards Credit Card

Paying monthly bills with a rewards credit card is a growing trend in household finance. It makes sense; you’re spending the same amount on monthly recurring bills anyhow, why not get a kickback?

The merits of this approach are obvious. If done right, you’ll be racking up reward points, building your credit and adding the simplicity of packaging multiple payments into one. But this is only if it’s done right — it requires financial discipline. If you’re not financially disciplined and diligent, consider this your warning. Using a credit card as a proxy can get out of control fast and end up in disaster.

Still considering a rewards card for monthly recurring bills? Here are a few tips and variables to make sure it works in your favor:

• Identify the right bills: The premise of this entire strategy is that you’re covering recurring monthly bills. The safest bet, then, is to identify the monthly expenditures that are static. Your student loan, vehicle, cable, Internet and phone bill should be the same amount month after month. Then there are dynamic bills that recur monthly, but fluctuate — gas, electric, water and the like. If you add the dynamic bills to the mix, you’ll need to pay closer attention because your credit card bill will now fluctuate monthly.
     
• Check for convenience fees: Some companies, especially small and local businesses, charge a convenience fee when you pay with a credit card. If you’re paying a 4% convenience fee for your Internet and cable, and are getting a 2% reward in return, you’re not saving anything — you’re actually losing 2%. Before you bother looking for the right card, make sure that the bills you’ve identified won’t charge you to pay by credit card. It could put a kibosh on the whole thing.
     
• Identify the right card: This factor is based almost entirely on personal preference. You’ll find reward cards that kick back cash, but probably at a lower rate than cards rewarding points redeemable on goods and services. A quick Internet search for “credit cards” will turn up all sorts of credit card comparison sites. Pay attention to stipulations like fees, point restrictions, point expiration and point forfeiture.
     
• Leave it home: It might make sense to carry around a credit card for emergencies, but it’s a good idea to keep this particular card isolated. Set it up to cover your monthly recurring bills, then put it in lock box or another safe place in the house. Don’t let it mix with your other cards and finances. Using this card for other purchases is the slippery slope that can bring the whole structure crashing to the ground.

In the long run, using a rewards credit card to pay monthly recurring bills can produce a few hundred dollars worth of kickbacks every year, but be careful. A single slip up can trigger interest charges and fees that can wipe out any value that this plan can is able to produce. If you feel like you can stay attentive 100% percent of the time, give it a shot. If not, it’s better to play it safe and skip the credit cards altogether.