Like most Americans, you probably use your credit card on a daily basis for life’s common purchases — groceries, gasoline, movie tickets, and the like. Would you ever consider to pay rent with a credit card? Currently, credit cards account for over $1 trillion of the total $13 trillion in American debt.
Few people think twice about charging a Netflix subscription or a small online purchase. Rent is a big monthly expense many people would never even consider putting on plastic. For a good number of people, paying rent with a credit card is a terrible idea that can lead down a path toward financial ruin. In some cases, it could be a wise move to leverage a credit card company’s funding for your monthly rent.
Let’s look at some reasons why paying rent with a credit card might be a good or bad decision.
Reasons to Pay Rent with a Credit Card
Though it is uncommon for people to pay their rent with a credit card, it does happen. In fact, online companies including Plastiq, RedPad, and RentShare can facilitate your rent payment for a small fee, mind you. Your landlord or apartment complex may have its own system similar to these third-party vendors. And if you’re in any of the situations listed below, that fee for using these payment processors could be worth it.
Earning Rewards
If you’re not using a credit card that offers some sort of rewards, why not? For every purchase you make, a little money comes back to you in the form of a cash rebate, airline miles, hotel points, gift cards, or some other perk.
In most cases, these rewards are not worth changing your spending habits. Rather, they’re just a nice little benefit to compel you to pull out a particular card each time you pay. Most rewards are worth two percent or less. Fees charged for paying rent with a credit card are often around three percent. So for many people, this makes paying rent with a credit card a non-starter. If you happen to find a credit card rewards program that pays you more than the rent payment fee, you’ll come out ahead.
Some rewards programs require new cardholders to spend a certain amount quickly in order to receive a sign-up bonus. Paying rent could be an easy way to reach the amount threshold, and the initial reward could be so large that it outstrips the rent payment fee.
Building Credit
Perhaps your credit score has taken a few hits, and you need to prove your creditworthiness with an installment loan. One way to do that is by using credit responsibly. Don’t spend money just to spend money; that isn’t going to help you. A solution to your problem may be to pay your monthly necessities — like rent and utilities — with a credit card. Pay the credit card bills promptly, and you’ll be well on your way to a higher credit score.
Coverage in a Short-Term Pinch
Sometimes money is tight, and timing is everything. Maybe rent is due on the 1st of the month, and your next paycheck doesn’t come until the 15th. Paying rent with a credit card can help cover your expenses when you know money is just around the corner. If this is the reason you’re paying rent with credit, it is important not to make it a habit. As quickly as you can, get your finances in order so you don’t have to rely on the credit card to pull you through the month.
Reasons Not to Pay Rent with a Credit Card
Deciding to pay your landlord with your credit card is a choice you shouldn’t take lightly. And there are some very important reasons to stick with checks, debit cards, or ACH transactions. Here are some of the big ones.
Processing Fees
Again, processing rent payments by credit card are rarely free. Whether your landlord has a payment system or you use a separate online service, you’ll pay a small fee for the convenience of using your line of credit. If you’re able to use another method of payment that doesn’t incur these fees, that other way may be better for you.
Using Too Much of Your Credit Line
How much of your available credit you use is a significant factor in your credit score. A good rule of thumb is to keep your credit utilization at no more than 30 percent. So if you have a credit limit of $15,000, you should use no more than $4,500. If you use too much credit, this negatively impacts your credit score thus garnering you a higher interest rate on a mortgage and other loans.
Throwing Your Budget Out of Whack
Just about every landlord under the sun wants you to pay your rent within the first five days of the month. Some are bigger sticklers about it than others, but no landlord wants to be paid late. When you use a credit card to pay rent you, in essence, shift the rent’s effective due date. Yes, you’ve satisfied the landlord, but you still have to pay the credit card bill. Eventually, the bill comes due, and you’re stuck paying your landlord at the beginning of the month and the credit card company sometime else in the month. Now, your budget is thrown off, and you have to somehow get back on schedule. Doing so is very difficult if you live paycheck to paycheck.
Accruing Interest
When you pay your credit card bill on time and in full every month, the arrangement is essentially a series of free, short-term loans. If you don’t pay off the bill each month, you accrue interest you have to pay for the privilege of borrowing the credit card company’s money. The last thing you want to do with a credit card is accrue interest on one of life’s necessities such as rent, and even worse would be to allow interest to capitalize on the credit card debt. If you are unable to catch up to your credit card debt, follow this 6 step guide.
A Few Words of Caution
Credit cards are a wonderful modern convenience, but they’re also a fast way to get yourself in a financial hole. Before you pay rent with a credit card, take the time to analyze whether this method of payment is beneficial for you and make sure you understand exactly how credit cards work. If it is, and you can maintain control of your finances, go for it! If not, the best thing to do is stick with cash for your living expenses.
