Are there cons to paying monthly bills with a rewards card and then paying it off monthly?

Question

I have a rewards card I really like and we have about $5k in bills monthly. Almost all of them I could setup to pay out of this card. That would earn about $600+ in rewards annually, which would make Christmas time that much easier.

Assuming I paid it in full each month just as if it were a consolidated monthly bill of our actual bills, are there any cons to doing this? Online articles seem to suggest it is a good idea if you can pay them in full each month, which we would do and have no issue doing so.

The card would be used exclusively for our monthly bills, so the accounting aspect will be easy enough, and we thought we would setup the bills on auto-pay and then set the payment date for the credit card to the 30th of the month and just make a single "bill payment" monthly.

I didn't find any other questions here regarding this in a search, so I'm wondering if it is a wise move or if there are downsides to doing so.

Answer 1

There are a few potential downsides but they are minor:

• If you forget to make the payment the interest hit the following month could be significant. With many cards the new charges will be charged interest from the start if the previous payment was late/missed. Just make sure you don't forget to pay the entire bill.

• If the $5K in monthly bills is a large portion of the credit limit for that credit card you could run into a problem with the grace period. During the three weeks between when the monthly bill closes and the payment is due, new charges will keep rolling in. Plan on needing a credit limit for the card of 2x the monthly bills. Of course you don't have to wait for the due date. Just go online and pay the bill early.

• If the monthly bills are a significant portion of the total credit limit for all credit cards, it can decrease your credit score because of the high utilization rate.

The good news is that over time the credit card company will increase your credit limit thus reducing the downsides of the last two items.

Also keep in mind you generally can't pay a credit card bill or loan with a credit card, but many of the other bills each month can be handled this way.

Answer 2

Pitfalls of paying plastic

• Charges can affect your credit - Credit is based on Debt to Credit. Maxing card each month can affect your score
• Plastic is easy. Lots of bills plus a new tv and other purchases and you go over limit. Plastic is easier to not notice money being spent.
• You need to be more diligent - extra charges, surcharges you'd notice if you didn't auto-pay with a credit card, etc.
• The rewards can change without notice - Changes in reward % can affect a good deal from bad.

That being said, you can also find cards that have better than the 1% it looks like you are getting. I have a card that gives 2% cash back on Gas Stations, Utilities (including stuff like AT&T) and Food Stores (Walmart included).

There are also limited time deals from cards - my fiance's discover has 5% cash back Oct/Nov/Dec on Online purchases.

Make sure to remain diligent, keep your balances low and don't get hit with interest rates or fees (I had HORRIBLE credit and I refused to get a card with an annual fee).

Why pay full price with cash, when you can get 2-5% cash back?

Answer 3

Some accounts, such as my electric, and payments to the tax collector charge a significant enough fee that is counter productive to use a rewards card. One example of this is Alligent Air. They give you a $6 discount if you pay with a debit card which was about 5% of the ticket price.

Anytime you borrow money, even as well intentioned and thought out as you plan to do so, you are increasing risk. By managing it carefully you can certainly mitigate it. The question becomes, does that time spent in management worth the $600/year?

I did the costco amex deal for about 12 years earning about $300-$400 per year and only once getting hit with a late/finance charge. Despite the success, I opted to end this for a few different reasons. First off people using credit tend to spend more. Secondly, I felt it was not worth my time in management. Thirdly, I did not want the risk.

Despite the boasts of many, the reality is that few people actually pay off their card each month. By your post, it seems to me that you will be one of the rare few. However, if you are expending 5K per month, your income must be above the US national average. Is $600 really worth it?

Perhaps budgeting for Christmas would be a better option.

Answer 4

There are hidden costs to using rewards cards for everything.

1. The credit card company charges fees to the merchant every time you make a purchase. These fees are a small amount per transaction, plus a portion of the transaction amount. These fees are higher for rewards cards. (For example, the fees might be 35 cents for a PIN-transaction on a debit card, or 35 cents plus 2 percent for an ordinary credit card or signature transaction on a debit card, or 35 cents plus 3.5 percent on a rewards card.)

2. After considering all of their expenses, merchant profit margins are often quite small. To make the same amount of profit by serving a rewards-card customer as a cash customer, the merchant needs to sell higher profit-margin items and/or more items to the rewards-card customer.

3. People who "pay with plastic" tend to spend more than people who "pay with cash". If you pay with a rewards card, will you spend even more?