If you pay off your credit card balance in full every month, it makes sense to put as many expenses as you can on your card — if you can avoid fees
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Dear Cashing In,
If I use my rewards card to make my car payments and mortgage payments and charge my utility bills, are those considered purchases and go toward points? – Paul
You have hit upon an important strategy for accumulating points: charging everything you can. By taking that approach, you’re not increasing your overall spending. You’re just redirecting your spending from cash to credit and reaping additional reward points in the process.
Now, you can’t pay for everything with credit. Typically, you cannot pay off one form of credit with another form of credit. If you could, imagine the endless loop of payments you could make to accumulate reward points: Charge something on Credit Card A, pay off the bill with Credit Card B, which you pay off with Credit Card A … and so on.
In your example, Paul, you will not be able to make payments on your car or house using a credit card. Also, beware those “convenience checks” that you might receive in the mail from your card issuer. You might think you can just mail one of those checks to your auto or mortgage lender. However, if you read the fine print, those checks are for balance transfers or cash advances, which typically carry high fees and immediate interest charges.
Balance transfers and cash advances are also ineligible for points in credit card rewards programs. If they weren’t, you could churn them by, say, taking a cash advance and instantly paying off the bill with the cash you withdrew.
With utilities, however, you typically can use credit cards for reward points. Some utilities will allow you to charge your bills for no extra cost, while others charge a small convenience fee of perhaps a few dollars to help offset their card processing costs.
Sometimes this might be worth it, and sometimes it won’t. For instance, if you earn the typical 1 percent for every dollar spent on your rewards card, paying a $5 fee to put a $50 power bill on the card puts you back 9 percent. But a $1 fee for a $200 bill might be worth it.
Don’t overpay for points. I’ll bet a lot of people get carried away in pursuing points and fail to consider the costs of accumulating the points they have.
If you are interested in ways to pay off auto loans and mortgages that can accumulate points, there are complicated strategies for that. As I mentioned above, you can’t pay directly with a credit card. But you can use a credit card to buy another type of financial product – such as a gift card – and use the features on that product to pay bills.
This strategy is known as “manufactured spending,” and the internet is filled with blogs and discussion sites that offer ideas on it. It’s complex, there are usually some fees, and card issuers could shut your accounts down if you overdo it. I consider it an advanced technique that requires considerable time and research.
For most people, sticking to the basics – shifting as many expenses as possible to one of the best rewards credit card, paying bills in full and on time – is a more straightforward way of accumulating valuable reward points.