Should You Pay Monthly Bills With a Credit Card?

These days, there are lots of credit cards that promise big windfalls of points, miles and cash back. The more you use your card, the more you're going to earn, so it's understandable if you're considering using your credit card to pay recurring monthly bills.

But is this always a smart idea? In short, no -- as with any other money move, there are benefits and drawbacks to consider.

Advantages of Using Plastic to Pay Your Bills

The most obvious advantage of using your credit card to pay your monthly bills is the rewards you could rack up. The best way to demonstrate this is with an example: Let's assume you have a travel credit card that earns 2 miles per dollar spent, and each mile is worth 1 cent. This means you're essentially earning 2 percent on every purchase you make.

Let's also assume your regular obligations include:

-- A cable/Internet bill -- $150 per month

-- A cellphone bill -- $75 per month

-- Pet insurance -- $50 per month

-- A condo fee -- $300 per month

-- A movie streaming service -- $8 per month

That adds up to $583 in recurring monthly expenses. If you put all of that on your travel credit card, you'll earn 1,166 miles per month. As a dollar amount, this is equal to $11.66 in rewards. That might not seem like much, but it adds up to $139.92 per year, or just about $700 over the course of five years. That could be enough for a plane ticket to Europe, just for paying your regular bills with a credit card.

Besides rewards, another advantage of using your credit card to pay your bills is simplicity. Remembering to make multiple monthly payments is a hassle for some folks; by consolidating several obligations into one payment, they're less likely to get stuck with late fees.

Also, there could be FICO score benefits. Keeping old credit cards open is generally good for your credit, but many issuers will cancel cards that have gone untouched for too long. A veteran piece of plastic that's used once per month will likely remain active, which will help your score stay intact.

Rewards Could Easily Get Canceled Out by Fees

Using a credit card to get points, miles or cash back on your monthly bill payments is savvy, but only if the rewards you earn outweigh the fees you might be charged. Although many companies will allow you to pay what you owe with a credit card for free, it's not uncommon to be charged a "convenience fee" for settling your bill with plastic.

Typically, convenience fees are assessed when a business allows customers to pay for a good or service in a nontraditional way. Since most bills are conventionally paid through a bank account, it's fair game for convenience fees to be assessed on monthly payments made with credit cards. Usually, convenience fees are expressed as a dollar amount per transaction. For instance, paying a cellphone bill with your credit card might cost you an extra couple of dollars per month in fees.

That sounds insubstantial, but if you think of it as a percentage of the transaction, it becomes clear that your rewards are getting wiped out -- and then some. In our example above, the hypothetical monthly cellphone bill was $75 each month. Let's say the carrier charges a $3 convenience fee for payments made by credit card. That represents 4 percent of the cost of the bill.

Since the rewards credit card in the same example only returned 2 percent on each purchase, the miles earned by using the card for this payment end up being negated by the convenience fee. Overall, it's 2 percent more expensive to pay the bill with plastic.

The Bottom Line

Clearly, deciding whether to pay a monthly bill with a credit card boils down to how much you're able to earn in rewards with your card compared with what you'll pay in fees. The choice isn't too hard if the company or business you're working with doesn't charge anything extra for credit card payments -- in this case, link up your plastic and watch the rewards flow in.

But if a convenience fee is assessed, you'll have to do a little math to figure out if the rewards you'll earn will outweigh it. Consequently, this decision will have to be made on a bill-by-bill basis -- it's unlikely you'll be able to rely on one go-to method for all your monthly payments. And here's one more pro tip: Think about fees and rewards in percentage terms so it's easier to do an evaluation.

Even if it doesn't make sense to accumulate rewards with recurring monthly payments, you'll be able to rake in points, miles or cash back on a lot of other purchases. As long as you're paying your bill in full each month and using a card that provides rewards you value, you'll come out ahead.