If you are like one of the millions of Americans who signed up for a new credit card last year, you know that credit cards today aren’t like the ones your parents had. These come with perks, such as free travel, cash back and gift cards to restaurants and stores. A lot of these perks can be paid for points that are earned when you sign up through an accredited financial institution and make purchases on your credit card at no additional expense to you.
What’s one of the easiest ways to receive credit card points? Spend the money you were already going to, and that’s by paying your bills. While there may be pros and cons for any financial practice, credit cards are a great tool to utilize and take full advantage of. By earning points at no additional cost to you, you are making your money stretch while achieving financial goals. So, how can you get started?
Set up your budget and see what bills you have
After setting up your budget or “spending plan,” you will be able to see what bills you already have. Along with rent, you should account for utilities and any other expenses you have such as your cell phone bill, insurance policies and membership fees like the gym. The money you have put aside for your expenses should stay in your checking account untouched.
I also like to include variable expenses, which are expenses that are not fixed, into my budget as well. I know that I need money for groceries and gas, so I put some aside every paycheck.
See what payment options you have for your bills, set up for automatic deduction.
Not all of your bills can be automatically paid or automatically paid with a credit card. For instance, you cannot pay other credit cards with a credit card or possibly your rent. But the bills that you can use a Visa or Mastercard for (or any other major credit cards accepted), set up for the automatic deduction! Instead of entering your debit card information that is linked directly to your checking account, enter your credit card info. This should direct your expenses and bills to be rerouted and charged to your credit card.
After your credit card cycle is billed, pay off immediately with funds for expenses
Since you already have the funds in your checking account, as established prior, you should be able to pay off your credit card in full every month. Paying your card off in full is attainable as long as you are not charging over the amount you have budgeted for. By paying your balance in full every month, you are avoiding any interest you may acquire by having a credit card balance. It is not going to be beneficial for you to charge bills on your credit card if you cannot pay your bills in the first place and you are collecting interest instead. Remember, points are not worth it if we have to pay for them!
Keep an eye on your credit utilization rate
When paying your bills with your credit card, it’s important to make sure you know when you are close to maxing out your credit utilization rate. Credit utilization rate is what allows lenders to see if you are utilizing all credit that is available to you. This also allows them to know if you are a worthy candidate for their business. While paying off your credit card bills every month shows that you are responsible for credit use, it’s still important to keep this in mind.
Do not charge more than what you have balanced for
If you are using your credit card for paying your bills to take full advantage of benefits, such as points for travel, do not charge more than what you have balanced for. In your budget, you should have enough cash to be able to pay this credit card off every month. If you do not pay it off in full, you will collect interest, and possibly late fees if you do not pay on time.
A tip to keeping an eye on the balance? Check on your finances (credit cards and bank accounts) once a week during a money date. I kind of glance over once every other day just to make sure things are where they should be and I am staying within my budgeted allotments. Money is personal so make sure you figure out what works for you and go from there.
If you have multiple accounts being processed at the same time, it’s important to stay organized. For the sake of paying your bills, and avoiding late fees, stick to only using one or two credit cards. If you have multiple bills being charged on multiple cards with various due dates, it’s going to get confusing. You may misplace a statement, forget to pay a bill or worse, be hit with a ding to your credit. Another consequence? You may not have enough room to pay your next round of bills and can get a late penalty on those too.
Along with sticking to one card, make a note on your calendar when your credit card payment is due so you can pay it off in full every month without missing a beat. Review to ensure you agree to all charges on your credit card and that all bills are paid on time.
Don’t pay for points
It has been mentioned before but do not pay for points! Points are supposed to be something that is earned for free by utilizing credit to cover spending that you were going to do anyways, such as bills. By paying for interest, late fees, convenience fees or any other type of cost, you are technically paying for points. Paying for points with hits to your credit are completely not worth it and against the point of using this financial tool for this purpose. Pay attention to your bills as mentioned above so you can avoid this at all costs.
A way to avoid fees may be to start small and then gradually work your way up. Start off by charging a small bill such as your cell phone and then work up to paying bigger bills such as utilities. This way you are not changing your financial routine all at once and can keep better track of what exactly you are charging to be paid off at a later time.
A bonus to using credit cards to pay expenses? You can track your spending
By using your credit cards for your fixed and possible variable expenses, it’s always an excellent idea to track your spending and see what you have coming out of your account. While not necessary needed to pay your bills, by having an overall picture of your spending may be a good thing. By able to see where your money is going and what bills are taking up a good majority of your income, it’s possible to cut back on your expenses.
Cutting back on your expenses allows you to reach your financial goals and freedom a lot sooner. It also allows you to enjoy those points without too much grief.
I get how to pay my bills. But is paying with a credit card worth it?
Only you can answer if paying your bills with a credit card is worth it for you and your financial picture. Hopefully, this outline gives you the chance to compare your options and pick the right one for you. By earning points with your credit card to be turned in at a later time, you are utilizing a great financial tool while collecting bonuses at no additional cost to you.
Points can allow you some extra wiggle room with cash back, gift cards to help offset expenses and travel for free or close to free. And who doesn’t love a free trip?