Paying your utility bill with a credit card?
For some credit card users, it could be a smart idea. For others, not so much. And in some cases it can be impossible, for instance, if the utility doesn't accept credit card payments, which is sometimes the case, although debit cards seem to be accepted more readily.
And there are many reasons it can be a very bad idea to pay for a utility with your credit card. Particularly if you frequently end up carrying revolving debt, your $82 water bill could, in theory, become a $94 water bill, or a $111 water bill, or more.
Third-party utility payment services
Several years ago, third-party companies started cropping up, in effect saying, "Hey, pay your utility bill with a credit card through us. We have relationships with the utility companies and credit cards, so you pay through us, and get the convenience of paying with a credit card and earn rewards points."
This sounds good until you consider that frequently you are charged 2 to 3 percent for the convenience of paying your bill through a service when you could might be able to set up bill pay through your bank and have your utility bill debit your checking account without any additional fee. Although at least one payment service, ChargeSmart, can enable you to pay utility bills at no additional charge.
ChargeSmart, which also allows people to pay their mortgage, auto loan and student loans through their website. ChargeSmart CEO Tim Brinkman told explains, the goal is for consumers to have instant rebates from all the credit card companies and banks out there.
Convenience paying utilities with credit cards
Brinkman says that the convenience factor is worth more to people than one might think. Most of ChargeSmart's customers are there for the convenience, he observes.
"That was a little bit of a surprise to us," Brinkman says. "When we originated the concept, we figured, given our fee structure, that most people using it would be using it for cash management purposes. People can basically delay the payment of bills by 45 days when they put it on a credit card, and if you have a lumpy earning stream, like a retailer, or if unexpected expenses come up, this lets them use our service in the most economical manner. But, to our surprise, mostly it's the convenience user."
Brinkman paints a dire picture of people who pay utilities through a utility website with their credit or debit card. "Most websites, when they do enable you to pay with a credit card, are clunky," Brinkman says, "and you have to sift through about seven or eight screens and then register and give them your password ID and user name. With our site, you can pay your utility in about 30 seconds."
I know what he means. Some utility companies can make paying online a hassle.
Why some utilities don't take credit cards
I asked Brinkman why some utility companies haven't been as quick to accept credit card payments. He says it's due to the interchange fee that credit cards charge for processing payments. Retailers accept them as a cost of doing business, says Brinkman. He's right, of course. If you're selling something in a store, and you don't accept credit cards, you're going to have 500 competitors that do accept them.
"But with utilities," Brinkman says, "they don't need to accept credit cards for competitive reasons, and that's where we can step in. The extra fee is worth it to the customer but not worth it to the utility."
You can agree or disagree with that, but not on his next point. Adds Brinkman: "The utilities will get their money, or they'll turn your service off."