Editorial Policy

Pros and Cons of Paying Bills Online with Your Credit Card

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By Eva Norlyk Smith, Ph.D.
May 22, 2009

In a time-frazzled world, the idea of paying bills online using your credit card is appealing. Whether it’s utility bills, phone service, cable, insurance bills, or newspaper, more and more companies allow consumers to pay bills online with a credit card.

Most people pay 5-10 recurring bills each month. Compared to writing a check, stamping the envelope and mailing off the letter for every single payment, paying bills online can save quite a bit of time and hassle. There is no worrying about whether the payment will get delayed in the mail and not arrive on time, because most online payments post instantly. Even better, by using a rewards credit card for paying bills online, you can supersize earnings and cash in on rewards faster.

All major credit card brands, such as Visa and MasterCard feature a list of billers that accept their credit cards as payment. Simply go to the company website, find the link for online bill payments, and look through the directory of billers participating in the online bill pay program. You can also simply contact your billers directly.

Once you’ve determined which of your billers accept credit card payments, it’s time to contact each biller to set up payments. Go to the biller’s website to enter your credit card information and set up payments. There are two choices for payments: one-time bill payments and automatic payments. With the one-time bill payment option, you determine how much to pay and when. Once enrolled on a biller’s website, simply go to the biller’s website each month to review the bill and authorize the payment.

With automatic bill payment, each month the payment to that vendor will automatically be charged to the credit card entered at the time specified. You just contact the biller once to set up the payment and payments will be on automatic after that.

To sign up, you’ll need the information on your bill and your credit card. When signing up for automatic bill payment, be alert that there could be a delay before the payments become effective, so continue to pay bills directly until the biller confirms that the automatic payment has become effective.

While paying bills online with a credit card offers many great conveniences, there are a few potential drawbacks:

  • Some billers, such as utilities, may charge a small fee for processing a credit card payment. Always ask the biller before signing up if there is a fee.
  • If there is a dispute about a bill, it could be harder to get it resolved if the account is set up for automatic payments, because the bill has already been paid.
  • With automatic payments, you might be less likely to look at the bill and therefore less likely to notice any billing anomalies that need attention.
  • If you have only one credit card and use it to pay monthly bills, it could affect your credit score. This would be the case if the credit limit is small and if adding the monthly bill payments to the regular charges will cause your total charges to take up a significant portion of the credit limit. As a rule of thumb, never charge more than 30% of the available credit.

The greatest drawback of paying online, however, may be the temptation to not pay off the bills charged to your credit card in full at the end of each month. Deferring the payment of regular monthly expenses by letting the charges accumulate on a credit card is a sure way to start down the slippery slope of increasing credit card debt.

Fortunately, most of these drawbacks are easy to avoid. Use a dedicated credit card for monthly bill payments and pay it off in full at the end of the month. Check all bills carefully, even if they are paid automatically, and react quickly if you notice anything unusual.