Pros & Cons of Repaying Recurring Bills Through Credit Card
Credit Card is easily the most convenient way to make payments in this digital age. With more and more companies relying on automated systems for payment collections, Credit Cards are fast becoming the mainstay of many billing systems across various utility, energy, telecom, and even fuel vendors. The inherent advantages of Credit Cards and the increasing penetration of internet and mobile phone-based banking systems have made online transactions a part of our day to day life.
A majority of people use Credit Cards for paying the utility bills as automating recurring bills is too convenient and stress-free an option. However, if you haven’t used the card for repaying your electricity, water & TV subscription bills, it’s time you read about the pros and cons of using Credit Cards for recurring household expenses. The information will also be handy to those who are yet to apply for Credit Cards.
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Fit and forget
This is easily the most important and convincing argument in favour of automating your recurring bills on Credit Card. On a monthly basis, a regular household generates multiple bills: mobile phone bills, electricity bills, water supply bills, internet/ broadband connection bills, cable bills, piped natural gas bills, the variety is just too wide to list. Put a Standing Instruction on your Credit Card to charge these bills directly, and you do not have to worry about tracking multiple bills and payment dates. Just look at your Card Statement and make one card payment. Paying bills could not get any simpler.
Easily meet minimum spending thresholds
Many Credit Cards require that you pay an annual fee, but banks run promotional and loyalty offers where if the cardholder spends a certain amount on the card in a year, the card renewal fee will be waived off. Take for example, the case of HDFC Credit Cards. As we know, HDFC Regalia First Credit Card comes with an annual fee of 1000 Rs. This fee is waived off if you spend 1 lakh Rs in a year. If you put in all your recurring bills for an automatic charge on the card, matching this minimum spend limit becomes very easy. Thus you will enjoy dual benefits without adding any load on your pocket.
All Credit Cards offer reward points on spends you make. Some cards, like Prime Advantage SBI Credit Cards, allow you to redeem reward points for cashback; some allow rewards redemption in the form of fuel, and some allow rewards redemption in the form of special gift items and shopping vouchers. With regular spending on your Credit Card, you would continue to accrue reward points. If you can redeem reward points for cashback, you can practically gather enough points every year that in at least one month, one of your bills will be essentially zero.
Improving your credit score:
If you place an automatic bill payment (standing instruction) on your Credit Card and ensure that all your Credit Card dues are paid in time, the Credit Card issuing company will make regular positive reports to credit bureaus such as CIBIL. The history of making all your payments on time and utilizing a low credit limit each month builds your credit rating.
Timely card payments and low credit utilization are easily the best ways to improve your credit score, and you can do both by paying recurring bills through Credit Card.
Get Billing discounts:
Did you know that bill collection is one of the biggest operational expenses for all companies? Cash handling is always cumbersome, and considering the large volumes of cash that billers collect, they are always on the lookout for methods to wean their clients off cash payments. As a result, they offer special discounts to people who use automatic payment methods. Even after giving attractive discounts, the billers still get a huge cost saving over cash collections, so why not make the best out of a win-win situation. You get a discount; billers reduce costs and earth benefits from reduced paper usage.
Before we move to the cons of automatic bill payments, let us look at some of the best Credit Card options for making bill payments. Among SBI Credit Cards, Unnati Credit Card is a great choice for bill payments. Among HDFC Credit Cards, Diners Club range is a very smart choice.
Expired cards may lead to missed bills:
This is easily the biggest concern with automatic payments. Since all your bills are paid automatically, you simply tend to lose track of auto pay registrations over time. If you do not update your card details with billers once a new Credit Card is issued, you might end up with missed bill payments. In many cases, though, the banks may be instructed to forward standing instructions to a new card, but this is a hit or miss affair.
Risk of the card being charged even after you have terminated the service:
Another con is that when you have a standing instruction of bill payment but terminate your service mid-month, the standing instruction may take some time to be terminated. In this case, your card may get charged even if you ended your billing relationship. While you will get your money back, but you will have to run around a bit, and that would be an annoyance.
Risk of Credit Card being overcharged:
There may be cases where the biller may generate incorrect bills. If you do not keep an eye on your bill, this incorrect bill will be charged to your Credit Card automatically. So always keep an eye on your bills and ask the card issuer to hold the SI if you have biller disputes.
Risk of Credit Card information leakage:
When you set up automatic payment instruction on your Credit Cards, you share your Credit Card information with your biller and authorise them to charge your card without any interference from your side. This means that if the billing company gets attacked by hackers who steal Credit Card information, you become vulnerable to fraudulent charges on your card. Thankfully all Credit Card issuers are aware of such risks and regularly take protective steps, but you cannot completely rule out the risk.
Missed card payments invite higher interest:
Finally, if you miss Credit Card payment, you will have to pay much higher fines and interest rates than what your biller would charge you. Most billers will charge you late fees only for around 3 months before they start levying interest. However, Credit Card interest becomes applicable as per the missed payment cycle.
The Final Word:
All in all, paying your recurring bills through Credit Card is a very good idea, the advantages are many, and almost all cons can be mitigated by the safety considerations you observe in regular Credit Card usage.
Also Read: Pros & Cons of a High Credit Card Limit
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