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The ease of charging your monthly rent to a credit card without having to send a check in the mail is extremely attractive. And if you’re a tenant who uses direct deposit to make your monthly payment, you might have thought about how you could speed up your cash back, points or miles using your credit card instead.
Paying with plastic may seem like a convenient alternative, but while there are ways to do it, it’s not for everyone. Similar to charging a large expense like tuition fees on a credit card, there is most likely an associated processing fee that outweighs any rewards you might earn.
“If you have no other way to keep a roof over your head, then using a card could save you a few months to get back on your feet financially,” the financial expert said. John Ulzheimer, formerly of FICO and Equifax. To select. But at the end of the day, “using a card to pay rent or a mortgage, as long as your lender or landlord allows, has pros and cons.” This should only be done when you are almost certain that the benefits will work in your favor.
Below, To select explains what to think about before paying your rent with a credit card – and the one time you really should.
The best case scenario would be for your landlord or property management company to accept credit cards at no cost associated with each transaction, but this is very rare; if they accept credit, you will likely have to cover the cost of the transaction fees.
If your landlord doesn’t accept credit cards, your second option would be to use an online bill payment service, but these are expensive. Plastic, a popular choice for renters, applies a flat fee of 2.5% to every payment and Payment: Paypal charges a 2.9% processing fee, plus $ 0.30 per transaction.
The processing fee to charge your rent to a credit card is typically between 2.5% and 2.9%, which means that if your monthly rent is $ 1,471 (the 2019 national average) and you are charged a 2.5% processing fee, you would pay an additional $ 36.78 each time you use your card to pay rent; that’s an additional $ 441.36 for year-round sweep. Any rewards you may have earned with your credit card may be forfeited at this point, especially if your credit card has an annual fee.
“As long as you use a card and earn rewards, if you can pay off your balance in full each month, you have at least one tangible benefit from paying with plastic,” says Ulzheimer.
In other words, you only have to pay your rent with a credit card if both of the following conditions are met:
- You can be sure that the value of your rewards exceeds what you pay in processing fees; and
- Your monthly budget includes paying your balance in full before your Grace period ends
An example is with the Chase Sapphire Preferred® Card, which offers new cardholders 60,000 bonus points if they spend $ 4,000 in the first three months (worth up to $ 750 for travel when you redeem through Chase Ultimate Rewards®).
Since most bonus offers require a large upfront expense, charging a high rent bill can help you meet that large expense requirement in a timely manner. But don’t make it a habit after the 3 months have passed.
“The downside is that you will essentially be making one large purchase on your card each month,” says Ulzheimer. “If you get into the habit of just doing the minimum payment your card will probably be max. fast enough.”
“Credit scoring models will also punish you if your balance consumes too much of your credit limit,” says Ulzheimer.
This means that there might be a spike in your credit utilization rate, which is the ratio of the amount of credit you used to the amount available – a very important factor that lenders use to determine your credit rating. While experts recommend keeping your usage rate below 30%, it’s worth noting that a monthly rent could easily exceed that 30% maximum depending on your total credit limit.
Consider a scenario where your monthly rent costs $ 1,000 and the credit card you use to pay it has a limit of $ 5,000; this already uses 20% of your credit to cover the rent. Other current expenses that you charge to the card will easily rise over the month to 30% or more.
For this reason, it may be worthwhile to ask your lender first for a increase in credit limit before charging the rent to your card.
While credit cards can be handy for paying your monthly rent, there’s really only one time you should use them for this purpose. If you want to hit a minimum spending amount on a new credit card and plan to pay off the balance in full immediately so you don’t pay interest, this could be a rewarding route. Otherwise, it’s hard to earn more rewards than what you spend on high processing fees with each monthly payment.
The exception to this would be if you’re in a month’s rush and need to use a credit card as an emergency backup. Even then, you will need to make sure that you can pay off your balance in full during your next billing cycle so that it doesn’t backfire and that debt does not persist, resulting in interest charges. And if you already can’t afford to pay off your credit card balance in full every month, it’s probably not a good idea to start charging rent on top of that.
“Ultimately, paying your rent or mortgage the traditional way, from funds in a bank account, is still the safest option,” says Ulzheimer.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.