Should You Pay Bills With Your Debit (or Credit) Card?
Debit and credit cards are useful tools for shopping online and in person. But you can also use your cards to pay bills like tuition, taxes, utilities (electricity and water, for example), and more. Payment by card is instant—which is helpful if your due date is approaching—and you don’t need to dig up your checkbook. However, before you make a habit of it, get familiar with the pros and cons of paying your bills with plastic.
Setting Up Payments
Paying with your card is usually just a matter of providing your card information to your biller. It can be as simple as mailing in your card information (instead of an old-fashioned check), or you can automate the whole process.
Pay online: Login to your account and look for options to "make a payment" or "set up automatic payments." In some cases, you don’t even need to login—you’ll just provide enough information for the biller to find your account. However, it’s best to log in if you have the option, because it may be easier to track (and prevent) any problems if you do everything while logged in. From there, you'll enter your card number and agree to terms, whether you’re making a one-time payment or setting up automatic billing.
Pay by mail or phone: You can pay bills with a card, even if you receive printed statements. For example, a medical office might send a bill that offers several payment options. In addition to sending a check, you can call and provide your card information over the phone. Alternatively, you can write your card information on the payment slip and mail it back. Using the phone is the better option if you're coming up on the payment’s due date.
Whatever method you use, be prepared to provide the following:
- The card number
- Your billing address for the card
- Your name as shown on the card
- The card's expiration date
- The three-digit security code on the back of the card
Risks and Costs
While payment by card is convenient, other methods might be better for you, depending on your circumstances.
Debt: If you're using a credit card, going into debt is a serious risk. Your bills will add up on your credit card, but your checking account balance will remain high. If you don't have the discipline to pay off the entire card balance every month, you’ll end up in debt.
If you think that’s a risk, keep doing it the old-fashioned way (there's nothing wrong with that—all that matters is that you know yourself and keep yourself out of harm's way). Racking up debt means high-interest charges, and you might end up in a hole that you can't get out of. A debit card linked to your checking account can help you avoid debt, but then you’re putting your checking account at risk.
Credit scores: You might want to pay off those credit cards more often than every month to avoid damaging your credit. Credit scoring models give higher scores when you use a relatively small percentage of your total available credit (less than 30 percent is best). If you use too much—even if you pay the balance in full every month—it can look like you're getting in over your head. So, be sure to pay down your balances any time you approach 30 percent. For example, if your credit limit is $1,000, you'll want to keep your balance below $300.
That might mean making several payments per month, especially if any bill takes up a significant portion of your credit limit.
Fees: In many cases, there are no additional fees when you pay bills with plastic. But some organizations charge extra, so you need to pay attention to the totals before you click submit. If you use a credit card, you might also pay an annual fee to your card issuer. Make sure it's really worth it if you're paying bills with the card to earn rewards.
Losing control: When you pay with a debit or credit card, especially if you make the payments automatic, things can get out of control before you realize it. You’re likely to pay less attention to your bills and miss expensive errors or rate increases. If you use a debit card, there's a better chance that you'll bounce a few checks or owe overdraft fees. Finally, you might simply feel less of the pain of spending, which makes it easy to overspend.
Given the risks above, you might wonder if it’s a good idea to pay bills with your card, but there are several benefits.
Rewards: Rewards are often the first reason people think about paying bills with a credit card. Sure, you might rack up points or earn cash back, but there are other good reasons as well. Even if you use debit cards, which are less generous but can offer rewards, it still might be a good idea to put bills on your card.
Convenience: There's no need to wait on the mail, write checks, find a stamp, or even log into your bank account’s online bill payment system. If you deal with paper at all, you might write down your credit card information and mail it in, but at least you won't use up your supply of checks. The easiest approach is to make payments automatic, so you don't have to do anything—but this can cause problems as described above.
Easy recordkeeping: Along similar lines, it's easy to keep track of expenses when you pay with a credit card. Your card issuer automatically creates an electronic record of every transaction, so it's easy to categorize your spending and see where your money goes. Your bank (or an app like Mint) might even categorize expenses for you, so it’s easier to understand your basic living expenses.
Manage cash flow: How many bills do you get each month? If it's more than a handful, life might be easier if you pay with a credit card. There's no need to log in to your checking account every time a bill comes due to make sure there's enough cash available. Instead, you can just put all your bills on your credit card and then make one large payment every month. However, if you use a debit card you will need to make sure funds are available.