If you have a rewards credit card, you may want to maximize your points and find ways to rack up more rewards. But at the same time, you also want to avoid building up credit card debt.
A great way to earn valuable rewards without developing a big balance is to use your card for routine expenses you have to pay for anyway, such as your utility bills. The average single-family household spends nearly $4,000 on utilities each year. With a good credit card, those expenses could help you net rewards to use toward free travel or statement credits.
But is it always a good idea? Here’s what you should know before you pay utility bills with a credit card.
Is it a good idea to pay utility bills with a credit card?
Using your credit card to pay for utilities may sound like a no-brainer to earn rewards, but there are distinct benefits and drawbacks you should consider.
4 times paying for utilities with a credit card makes sense
- You want to automate payments: If you link your utility accounts to a credit card, you can usually sign up for automatic payments. This process will ensure you never miss a payment, giving you one less thing to worry about.
- You want to track your spending: Your credit cards can sync with budgeting apps like Mint or You Need a Budget, helping you track your spending and manage your money.
- You don’t want to write a check: Using your credit cards to pay for your utility bills means you don’t have to remember to write and mail a check or keep stamps on hand.
- You want to earn rewards: Your credit card rewards can add up if you use your card to pay for utilities. If you had $4,000 per year in utility bills and used a card that offered 1.5% cash back on every purchase, you’d get $60 in cash back just for covering necessary expenses.
3 times using your credit card for your utilities may not make sense
- The utility company charges high fees: Some utility companies charge you a processing or convenience fee to pay your bill with a credit card, so you should ensure the credit card points you can earn will offset the fees you pay.
- You have to use a third-party service: Some companies won’t allow you to use a credit card at all. In that case, you’ll instead have to use a third-party service if you’re set on using a credit card. However, these services charge additional fees.
- You’re worried about your credit score: It’s possible that using your cards to pay for utilities could damage your credit score. Your credit utilization — how much of your available credit you use — accounts for 30% of your FICO credit score. With more charges on your card, you’ll use more of your credit line, potentially increasing your credit utilization and reducing your credit score.
How to pay utility bills with a credit card
Most utility companies, including electric, water, cell phone, and internet providers, will allow you to use a credit card to pay your bill. However, some may charge a fee for the convenience of using a credit card. According to the National Association of State Utility Consumer Advocates, those fees can range from $1.50 to $5.85 per transaction.
If your electric company charges you $5.85 per transaction to pay your monthly bill with a credit card, that means you’d pay $70.20 per year just in fees. Along with your other utility bills, you could end up paying a hundred dollars or more in fees by opting to use a credit card as your payment method.
Some utility companies may not accept credit card payments, but you can get around this problem by using a third-party service like Plastiq. You pay these servicers with a credit card, and they’ll then pay your utility bill using a check or money transfer.
However, you should keep in mind that these services charge extra fees. For example, Plastiq charges a 2.5% fee on every transaction. If your electric bill is $100 per month, that means you’d have to pay an additional $2.50 in fees — or $30 in fees annually.
Are the fees worth it?
When deciding whether or not to use a credit card to pay for utility bills, it’s important to consider the fees and potential rewards.
Say you can earn 1.5% cash back on your utilities with your credit card. On a $100 bill, you’d get $1.50 in rewards. But if you have to pay $2.50 in processing or convenience fees, the cost of using a credit card outweighs the rewards.
But a card with higher rewards may make it worthwhile. The U.S. Bank Cash+ Visa Signature Card, for example, offers bonus categories each quarter where you can earn 5% cash back. If you choose utilities as one of your bonus categories, you could earn $5 back on that $100 bill — potentially offsetting any convenience fees you may pay.
To earn valuable rewards, use a credit card that offers high-enough rewards to make up for fees or use your card for utilities that don’t charge a fee at all. Luckily, that’s becoming more common: According to Electric Light & Power, there are now over 30 utility companies that offer fee-free credit and debit card processing.
Best credit cards to pay your utility bills
If you decide to go ahead and use a credit card to pay for your utilities, consider a general card that offers a flat rewards structure on every purchase.
For example, the Chase Freedom Unlimited Card allows you to earn 1.5% cash back on your purchases. But during your first year as a cardmember, you’ll actually earn 3% cash back on all purchases, up to $20,000 spent. With 3% cash back, you could earn $120 if you used your card to cover $4,000 worth of utilities in the first year.
Or the Capital One Venture Rewards card gives you 10X miles on bookings with Hotels.com through January 2020 and 2X miles on every purchase, every day. With $4,000 worth of utilities, you could get 8,000 miles — an $80 value you can redeem for travel arrangements.
By shopping around for the best credit cards, you can find a card that works for you and helps you maximize your rewards.