Maximizing A Rewards Credit Card With Your Monthly Purchases

With the multitude of rewards cards out there offering cash back, points and airline miles many of my clients ask me if it makes sense to pay common household bills with their credit cards. Since the more you spend the more rewards you earn the natural gut instinct for many is to go for it, break out the credit card and pay that electric bill on credit while racking up those sweet rewards. Yet there are drawbacks to consider. For some this will work out fine, for others it is a recipe for disaster.

Most people just see the rewards. Yet the rewards do not equal to much over all. Take for example paying these bills on credit:

Cable and internet: $186 per month
Cell Phone Family Plan: $222 per month
Electric bill: $175 on average
Gas bill: $95 dollars on average
Insurance for auto and home: $240 per month

These bills on average will amount to $918 per month. lets assume your using a airline rewards card that rewards you 2 miles per dollar spent, and each mile is worth 1 cent. This equals out to earning 2% on your purchases. so your $918 in recurring monthly expenses is worth $18.36 per month. This likely does seem much, that is because well it is not much. Yet it is better than what most people make on their savings accounts! Over the course of one year this will equal about $220. If you somehow refrain from using these points for 3 years you will have $660 which could pay all or most of the cost of airfare to say the Caribbean.

Some people do not even do it just for the rewards, some people do it for the ease of paying the monthly bills all at once and avoiding late fees due to forgetting to pay a bill.
When used correctly a credit card can be an interest free loan for slightly over 30 days, provided that you pay the balance off in full during the grace period of the statement.

If you do pay your bills with your rewards credit card, you need to make sure that fees are not over writing any potential benefit that your rewards card racks up. What I mean by this is that some companies will charge you a convenience fee or other such fees for the privilege of paying you bill with a credit card. These fees can easily wipe out any cash value of your rewards from using the credit card. Another way of wiping out your rewards if is you do not pay the balance off in full in which case you will owe interest and that interest will cancel out the value of the rewards you thought you had earned. Indeed you still earn the rewards but in our last example the rewards we only worth $18.36 yet the interest on a total of $918 could be $17.60 at 23% interest or $11.48 with an interest rate of 15%. Clearly you only really make the rewards worth it if you can pay off the balance every month in full.

It basically amounts to basic math if it is worth paying your monthly bills via credit card for the rewards or not. If your rewards are being eaten up by fees then the likely answer is no. If however there are no fees and you can manage to pay the credit card bill by the end of the grace period by all means charge your bills to plastic and reap the rewards. It boils down to making sure that you come ahead on the deal or not.

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