Some credit cards come with rewards like cash back or travel points. You can’t get those rewards if you don’t use the card, however. Luckily, many credit cards today offer accelerated earn rates on an array of categories, including recurring bill payments, which can help you earn points or cash back even faster. So, does it make sense to pay your bills with your credit? Let’s weigh the pros and cons to see if you can end up ahead if you use an appropriate strategy.
By paying bills with your credit card, you may qualify for rewards points that are allocated based on your spending. A new card might promote bonus points that you can only get once you’ve surpassed a monetary threshold. For example, some cards will offer an extra 35,000 bonus points if you spend at least $3,000 within the first three months. Or the card may boast an accelerated earn rate of 5% cash back for the first 90 days, up to a total spend of $2,000. Bill payments can help you meet that requirement and earn promotional bonuses.
Welcome bonus aside, rewards can add up quickly, allowing you to save money on future expenses. Cardholders can typically redeem cash back rewards in the form of deposits to select bank accounts or applied as a statement credit. That means you can save money on your bills. Additionally, some credit cards are associated with large financial institutions and let you apply rewards points to money products like registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs).
You can use your credit card to cover many different types of bills, such as your phone, cable, utilities, and insurance. You can set up automatic payments through each vendor to make sure your bills are all paid in full and on time. That way, you don’t risk late fees or a potential lapse in insurance coverage if the bill slips your mind. Some credit card issuers allow you to set up recurring bill payments through your account and may offer bonus rewards for setting up this feature. For example, these two BMO credit cards— the BMO®* CashBack Mastercard®* and the BMO®* CashBack Mastercard®* for Students— offer cardholders 1% back for the first $500 in recurring bill payments per billing cycle. After that, cardmembers receive 0.5% cash back.
It’s unlikely you’ll be able to pay your rent or mortgage with your credit card. But with a little research on the best credit card for your situation, you might discover a few new ways to save.
There are some drawbacks to putting your bills on your credit card. The biggest is feeling like you have more money than you do. The perks of rewards are only worth it if you pay the balance of the card in full and on time every month. Otherwise, you’ll end up paying more in interest than you earn in rewards, and you may find yourself unable to manage your debt.
A good habit is to pay your credit card bill immediately and bring the balance back to zero as soon as you can pay off your statement. If you have automatic monthly charges, keep an accurate tally and make the payment in full as soon as you can—don’t wait for your statement.
Beware of third-party providers that accept your card details to pay bills like rent, for example. You can’t typically pay these expenses with credit. Therefore, these companies often charge a fee of 2% to 4% for the convenience of using the service. In this case, as well, your cash back rewards aren’t always worth the added expense. Best to stick to companies you can pay directly with a credit card, with no extra fee.
Don’t be tempted to use your rewards right away. It can be enticing to redeem your rewards as soon as you are able or when you reach the minimum redemption value. But it may be to your benefit to “bank” those points instead. If you are planning to save up for an RRSP deposit where you earn interest, you may need a higher point balance before you can cash in. Keep those financial goals front of mind!
Select the best rewards card
Whether you’re looking for a new credit card in your wallet or simply want to compare features and rewards with your existing card, be sure to check the value of the point programs, annual fees, and sign up bonuses to help make your decision. Your rewards can add extra cash in your wallet in exchange for good financial habits.