Understand the benefits and dangers of using your credit card to pay the mortgage and other bills
It’s easy to get behind, especially during the holidays. If cash in your checking account gets a little low, is it ok to pay your bills with a credit card?
Is it the credit card to the rescue or is it a decision you’re going to regret later?
Yes, You Can Put Your Mortgage Payment on a Credit Card
I was surprised when I first heard that you could pay the mortgage with a credit card. I was just out of college. I had my first full-time job and my first credit cards, but my income didn’t always meet my 20-something lifestyle.
When I saw the little boxes on the mortgage payment, the ones I could use to fill in my credit card information, a light bulb went off. I could charge my bills and have another month to pay for them.
Of course, it wasn’t quite as simple as that and I learned a lot about debt over the next few months.
You can pay for most of your bills with a credit card but you better know the drawbacks as well as the benefits or a debt trap awaits.
Benefits to Paying the Mortgage with Credit
I like to stay positive so let’s start with the benefits of paying your mortgage and other bills with a credit card.
1) If you’ve got a card that gives you cash back or reward points then charging an extra thousand or two every month gets you to that free flight faster. Make sure the rewards program applies to cash advances, which is what paying bills is considered on your statement.
If you get 2% cash back then paying a $1,000 mortgage means you just saved $20…not bad.
2) The best use of a credit card is when you come up short and need emergency cash. That’s happened more than a few times for me and I was happy to be able to pay the bills with credit.
Even if you aren’t able to pay off the credit card completely before interest is charged, it still beats paying a late fee on the mortgage or having a missed payment destroy your credit score. The average late fee for a mortgage payment is between 3% and 6% while the average credit card interest rate is 1.25% per month.
Besides the late fee, missing a mortgage payment can mean dropping your FICO score by 50 points or more. That’s going to mean higher interest rates and going to make it really tough getting your finances back in order.
3) One of the most overlooked benefits to putting the mortgage and other bills on a credit card is the auto-payment option. This keeps you from forgetting to make the payment and is one less thing you have to worry about each month.
Sure you can set your bills up to auto-debit from your checking account but then you have to watch your account religiously to make sure there’s enough money to cover the payment every month. Kinda defeats the purpose of making it automatic.
Unless you’re credit card is close to its limit, you won’t have to worry about there being enough money to pay your automatic payments each month.
Drawbacks to Paying the Mortgage with Credit
I found only two drawbacks to paying the bills with credit cards but they’re big ones.
1) Using credit cards and debt can be dangerous if you don’t watch it. It’s easy to think of your credit card balance as extra money but it’s not money you actually have in the bank. That money has to be paid back and with interest.
If you’re not paying the credit card off every month then you’re probably paying more in interest than you’re gaining in rewards points or cash back. The credit card companies don’t make those programs to lose money or because they want to thank you for being a customer.
Credit card companies make billions off reward programs. They know that people will charge more and then not have enough in savings to pay the cards off every month.
For example, paying an 18% annual interest rate on a balance of just $500 every month will cost you $90 for the year. That’s enough to wipe out the cash back bonus on $4,500 worth of charges.
None of this is even to mention the trap of getting in way over your head on credit card debt.
Another option for emergency cash without relying on your credit cards is a personal loan. I've used peer-to-peer loans for debt consolidation and for a home improvement project but you can use them for anything. You can get a personal loan for up to $35,000 and rates are usually lower than most credit cards.
Check you rate on a personal loan here to compare against putting your bills on the credit card.
2) The bigger problem with paying bills by credit card, and this is one most people don’t know about, is that you’re usually charged a processing fee aside from the regular interest.
Most credit card companies treat bills as a cash advance and charge a 2% processing fee when you make the payment. That completely wipes out most cash back bonuses or rewards points you’ll earn.
Even if you pay the card off at the end of the month, you’re still in the hole for the processing fee.
I recommend everyone keep a credit card around for emergency purposes. We have three credit cards; one for emergencies, one for rewards points and one I use for business expenses. We don’t use the credit cards for bills because of the processing fee but we do use them for other spending for cash back bonuses.
Credit cards can save your financial skin and there are benefits to paying the mortgage and other bills with plastic, even if you have to pay the processing fee. The next time you reach for your MasterCard or Visa to pay a bill, think about the whole picture and make a better financial decision.
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