You need to use the guide point but. The end of the bit is smooth, that way it can ride around the inside of the outlet box and not cut it. They also work the same way with can lights in a ceiling.
1/8 is fine but less experienced workers will break the bit more often.
Yes Home Depot does sell 1/8 in. 5/32 in. and 1/4 in. Replacement Collets and Collet Nut Kit (4-Piece)
Please contact our RotoZip Customer Service at 1-877-768-6947, Monday - Friday, 8am to 6pm CST for further information.