Should You Use Your Credit Cards to Pay Your Utilities?

Humans are creatures of habit; we like routines and rituals that keep our lives in order. But while routine can be comforting, there are certainly some regular activities that most of us would happily forgo — like sitting down to pay the bills every month.

At the end of the day, however, making utility and housing payments are the literal cost of having heat, electricity, and a roof over our heads — luxuries few of us would give up voluntarily.

So, if you’re stuck paying them anyway, why not make your bills part of your credit card rewards strategy? Even in an apartment, utilities can run an average of over $300 a month, which, with the right card, can add up to a ton of cash back, points, or miles.

But, before running out to start charging your cable and electric bills, you should consider both the pros and cons of using your credit cards to pay your utilities.

Not All Companies Accept Credit Card Payments

Whether because of the hassle of dealing with a credit card payment processor, the interchange fees, or pure stubbornness, some small banks, apartment complexes, gas and power companies, and even communications companies won’t allow credit card payments at all, instead requiring payments to be made via a checking or savings account or a paper check.

If you come up against this problem, however, there may be a simple solution. Several third-party companies, such as the popular Plastiq, will act as an intermediary for credit card payments. You use your credit card to pay Plastiq, and the company writes a check to your utility or housing provider.

As you might expect, using a third-party service to pay your bills will come with extra fees — but so will paying the companies directly, in most cases.

Paying Utilities with a Card Can Mean Extra Fees

An unfortunate part of using credit cards is that credit cards come with fees. And we’re not just talking about the interest fees, here — though those are worth a mention (see below). No, we’re talking about interchange fees, also called swipe fees, which generally refer to the cost to the merchant for processing a credit card transaction.

Interchange fees can vary based on the credit card network, the issuer, and even the individual card, with some rewards credit cards costing the merchant upwards of 2.5% per transaction.

While most retailers simply treat interchange fees as a part of their overhead, essentially folding the cost of credit card processing into the overall cost of their goods, banks, lenders, and utility companies often transfer that cost directly to the consumer. In other words, paying your bills with a credit card will usually come with an extra fee, often 2% to 4% of your payment amount.

You Can Make Up the Fees with the Right Rewards Card

Although the idea of paying an extra fee to use your credit card can take some of the wind out of your rewards sails, don’t despair quite yet. You can still make paying your bills a profitable prospect by carefully choosing the rewards credit card you use to make your payments.

Basically, all you need to do is use a credit card that earns more in rewards than you pay in fees. So, if your gas company charges 1.5% to pay your gas bill with a credit card, using a credit card that earns unlimited 1.5% cash back on all purchases— like the Chase Freedom Unlimited® — will allow you to break even on the transaction.

While a standard unlimited cash back credit card may do the trick for smaller fees, consumers with larger utility bills may want to consider signing up for a credit card that offers bonus rewards specifically for utility purchases.

The U.S. Bank Cash+™ Visa Signature® Card, for example, allows cardholders to earn up to 5% cash back on utility payments when they select Home Utilities as their bonus category. Spread the rewards love even further by choosing “Cell Phones” as the second bonus category.

Signup Bonuses Can Be Worth the Fees

Even if your credit cards purchase rewards don’t make up for the cost of using your credit card to pay your housing or utility bills, there may be another reason to use your card: signup bonuses. Many rewards credit cards now come with signup bonuses — lump-sum bonuses that can be worth hundreds of dollars — that can be earned by reaching a set minimum spending requirement.

Most credit card signup bonuses require cardholders to reach the spending requirement within the first 90 days. The larger the signup bonus, the higher the spending requirement, and requirements of up to $5,000 are not uncommon for the top-tier rewards cards.

Since spending $5,000 in three months can be a challenge even for households with higher incomes, using your housing or utility bills to get a jump on your spending requirement can be a worthwhile proposition, even if you must pay a small fee to do so. Just be sure to crunch the numbers ahead of time to verify that the bonus will more than make up for any fees.

Pay Your Credit Card Bill in Full to Avoid Paying Interest

While it hopefully goes without saying, we’ll say it anyway: Earning rewards on your bills is only worthwhile if you can pay the balance off before you’re charged interest on it. No matter what kind of rewards you earn, they’ll likely pale in comparison to the interest fees you’ll be charged by your credit card company for carrying a balance from month to month.

This doesn’t mean you need to pay off your utility bill as soon as you charge it, of course. Most credit cards come with a grace period of at least 21 days for new purchases, and if you pay your full balance before the end of the grace period, you won’t be charged any interest on those transactions.

Keep in mind that the grace period applies only to net new purchases. Other transaction types, such as balance transfers and cash advances, will start accruing interest immediately (unless you have an active 0% APR offer).

At the same time, if you can’t pay off your entire balance, be sure to make at least the minimum required payment. This will prevent you from being charged a late fee, as well as prevent credit damage from having a delinquent payment reported to the credit bureaus.