Why you shouldn't pay rent with a credit card

Credit card transactions for rent payments are rife with fees and financial pitfalls. That’s not to say you can’t get something out of it.

Shannon Stapleton/Reuters/File
A for rent sign is seen on the front door of a home in Riverhead, New York.

When the idea of using a credit card to pay your rent passes through your head, it may seem like a brilliant idea – especially if you are someone with a rewards card in their wallet. All the extra points you can earn from something you can’t avoid paying for may seem like a secret treasure you haven't uncovered until now. Unfortunately, the reality of the situation is less than pretty. Credit card transactions for rent payments are rife with fees and financial pitfalls. That’s not to say you can’t get something out of it. Here we’ll go over what you need to think about before you consider making your next rent payment using a credit card.

The Fees Can Quickly Get Out of Control

Depending on which of the online rent-paying services you decide to use, you will be confronted with a variety of fees. However, one can expect at least a 3% charge when using a credit card. Furthermore, many of the online services that allow you to pay rent using a credit card do not do a great job in disclosing the fees involved until after you sign-up. Don’t let that discourage you from looking. Some places allow the property manager to set the fee. You don’t want to suddenly be blindsided by some astronomical charge.

You also shouldn’t forget about interest. APR on credit card transactions is much higher than most other types of loans. Therefore, if you fail to pay back your debts in full at the end of the month, you can expect to pay a lot in interest charges. Currently, the average APR on a credit card stands at around 17%.

Rewards Don’t Help Much

One argument people always fall back on when defending using a credit card for rent payments is the advantage of credit card rewards. You can earn cash back or miles on all those thousands of dollars you spend every month. It sounds great on paper. However, when you factor in the actual returns you get the numbers begin looking less than ideal. The absolute best credit cards will give you approximately 2% back on something like an online rent payment. Since the fees for such transactions are on average around 3%, you’ll be down 1%. Keep in mind that this is the best-case scenario. Most credit cards will only give you a 1% return on online payments, meaning your effective loss works out to 2%. You aren’t gaming the system when doing this. Instead, you are losing money.

Bonuses Can be the Only Exception

One of the only ways where paying for rent with a credit card can indeed be profitable is when you earn a welcome bonus. The top-notch credit card bonuses require you to spend a lot of money in a short period of time. For example, you may be expected to charge $4,000 to a card within the span of three months. While that is easily attainable by some, others may struggle to meet these requirements. One rent payment can easily tip the scales in your favor, making it a lot easier to qualify for an otherwise unattainable bonus.

What do you get in return? Credit card bonuses vary in value. However, the best ones can be worth upwards of $1,000. Therefore, if all you’re paying is $30-$50 in charges for using your credit card, you are clearly still walking away with a massive advantage in your favor.

As always, be careful. Remember to always do the math and make sure you’re walking away with money in your pocket. While some welcome offers can be worth hundreds of dollars, the one on your credit card may be worth just $50 or $100. Don’t make any assumptions or else it may end up costing you dearly.

Never Pay Rent with a Convenience Check

Credit card companies will sometimes issue you a convenience check. This looks like a regular check, though it is drawn against your credit line. If you use it, the bank will charge your transaction as a cash advance, not a regular purchase. This is a terrible financial move. Cash advances are some of the worst deals for consumers. They charge extremely high APR and come with heavy fees upfront. To make matters worse, you don't earn any rewards on cash advances whatsoever.

This article first appeared in ValuePenguin.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Why you shouldn't pay rent with a credit card
Read this article in
https://www.csmonitor.com/Business/Saving-Money/2016/1209/Why-you-shouldn-t-pay-rent-with-a-credit-card
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe