Can I Use a Credit Card to Pay a Bill?
Paying bills with a credit card seems like a financially savvy move: payments can be automated and may be at a lower interest rate, and you may even earn rewards such as airline points or cash back. However, although it is possible to pay bills with a credit card, it's a tactic to be used only by the most financially disciplined consumers.
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Bill Consolidation or Balance Transfer
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A common way to use a credit card to pay a bill is to take advantage of a card's "bill consolidation" or "balance transfer" feature. This perk is frequently offered to new credit card account holders. The consumer simply provides the creditor name, account number and amount to be paid, and the credit card issuer pays the bill. Often, consumers qualify for an initially-low "teaser" interest rate -- for example, six months at zero percent interest -- and it's up to the consumer to pay the balance in full during that time frame.
Consolidation offers usually charge a hefty fee that's paid to the lender, such as 3 percent of the amount transferred. If the balance is not paid in full, the rate usually skyrockets, so be sure to examine the terms and conditions of any bill consolidation offer.
Convenience Checks and Cash Advances
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Another common feature that credit cards offer is the "convenience check." The card holder may use the check anywhere that a regular check is accepted, including paying bills through the mail. Convenience checks may also be used at retailers that accept regular bank checks. They may also be cashed.
If you need cash, you may consider taking a cash advance. Cash advances are usually made at ATMs and require a personal identification number (PIN).
Both convenience checks and cash advances are expensive to use because there are "convenience fees" in addition to high interest rates attached to each transaction. Also, card holders are only permitted to utilize either feature up to the card's "cash advance" line, which may not include the entire line of credit.
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Online Bill Pay
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Many cards offer an online bill pay feature, which can be an extremely easy way to pay regular, ongoing bills. Cardholders are usually offered this service at no charge but are subject to the regular interest rate if the balance isn't paid in full at the end of the month. While it's easy to set up online payments and convenient to know that the bills will always be paid on time, if outstanding balances aren't paid in full, then debt and interest charges add up fast. There may also be hefty fees if the cardholder goes over his limit.
Risks and Rewards
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The financial rewards of using a card to pay your bills are great only if you are certain that you will be able to pay the balance in full every month, or if you are able to pay off the balance in a pre-determined period of time (for example, if you are taking advantage of a limited-time offer of zero percent interest).
The risks are huge. If you only pay the minimum payment, you may find yourself with two or three months' worth of bills consolidated as debt that is subject to high interest rates and possibly over-the-limit charges. In addition, your credit score will drop if you have "maxed out" your card, and you will not have any available credit in the event of an emergency.
Carefully examine your motives and financial situation before relying on a credit card to pay your bills; they are powerful financial tools and should be treated as such.
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