Bill consolidation: Could your credit card do more?

For some people, the idea of sitting down once a month with a stack of bills and a checkbook is antiquated. For others, it's the normal way of tracking their spending to make sure they spend less than they earn.

But how do people manage their finances and pay bills if they don't use a checkbook and paper checks? There are several online options, ranging from direct deposit to online bill payments to using services like Zelle® to send and receive money between friends and businesses that you know and trust.

Here's another strategy: pay your bills with your credit card. Also called bill consolidation, this method has pros and cons, depending on your personal finances.

What's bill consolidation?

With bill consolidation, you set up automatically recurring bill payments using your credit card.

If you have good credit and you're in the habit of paying off your credit card every month, bill consolidation generally has more pros than cons. Here are some of the benefits:

You can earn rewards. Let's say you have a rewards credit card that allows you to earn cash back, travel miles or other rewards for every dollar you spend. The more bills you pay on your credit card, the more rewards you could earn. Plus, if you're opening a new card, some have sign-up bonus requirements, and this might help you get more rewards faster. Different credit cards have different rules on what charges are eligible to earn rewards, so check your reward program terms and conditions to confirm.

It's easier to track your spending. When you pay your bills with your credit card, you have a convenient record of all your spending in one place.

You can save time and energy. Bill consolidation means you only have to make one payment every month. For example, instead of using your financial institution's bill paying option or writing a check to your utility provider, cable company, cell phone company and subscription service, you can pay them all with your credit card, if allowed.

You could help improve your credit. If you consistently pay your credit card in full and on time — and you don't get close to your credit limit — it could help improve your credit. It can also demonstrate that you're a responsible borrower to creditors.

You'll get fraud protection. When you pay for products or services with a credit card, you can get protection from fraud. Under federal law you may be responsible for no more than $50 in connection with the unauthorized use of your credit card. Some banks, like USAA Savings Bank, have zero liability policies.^{See note1}

You're less likely to miss a payment. Even the most responsible person can miss a payment every now and then. But if you schedule your bills to be paid automatically through your credit card, you reduce the possibility for human error. Remember to adjust for a higher credit card payment.

Bills you can pay with a credit card

Not all bills can be paid using a credit card. Also, sometimes merchants or service providers will let you pay your bill with a credit card, but they'll charge you a fee or service charge for it.

If that's the case, make sure the fee they charge is less than the rewards you'd earn by using your credit card. Otherwise, it may not be worth it.

For example, if your rewards card gives you 2% of your spending back each month, but your landlord charges a 3% convenience fee for using a credit card, you're not coming out ahead.

The following bills usually can be paid with a credit card.

• Nondebt bills: These include things like your utilities, cell phone, insurance, day care and internet providers.
• Subscription services: These also fall into the “nondebt” category and include grocery delivery fees, streaming services and gym memberships. If merchants charge service fees, you should think twice before you put them on your credit card.
• Rent payment: Your landlord may accept credit cards but be sure to ask if there's a service fee.
• Mortgage or car payment: Again, you may be charged a fee if you pay by credit card — if it's accepted. Read the fine print. If your mortgage or car loan is with the same bank as your credit card issuer, you probably won't be able to use your credit card to pay the bill.

Best practices for paying down credit cards

Here's the most important rule when it comes to bill consolidation: Don't put bills on your credit card because you don't have the cash to pay them now.

If you don't have the money to pay your bills, charging them to a credit card may not be the best answer. It can lead to more debt, which can spiral out of control.

Why? If you carry over a balance, you have to pay interest on that balance. Imagine that your credit card charges a 15% annual percentage rate, or APR. That won't matter if you pay off your balance in full each month. But if you take an existing balance and add your gym membership, cable bill and cell phone bill, you're paying interest on a much higher dollar amount.

For more tips, read How to get out of debt.

Can bill consolidation hurt my credit?

Several factors contribute to your credit, but one of the most important is called “credit utilization.” It's the portion of your available credit you use. In short, you're generally better off when you use less of your available credit.

What does that have to do with bill consolidation? Even if you pay off your balance in full each month, bill consolidation could cause your credit utilization ratio to increase.

Sometimes when people are just starting to build credit, they have a low limit on their credit card. For example, if you're only allowed to charge $500 on your credit card, and you charge $400 — or an amount close to your limit — lenders may think you're using too much of your available credit.

So if you have a fairly short credit history and one or two credit cards with low available credit limits, bill consolidation could backfire.

If you're not sure what's best for your specific situation, consider discussing it with a certified credit counselor.

You can also get help managing your monthly debt from financial counselors with the National Foundation for Credit Counseling.^{See note2}

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.