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.