FORGET WHAT YOUR parents told you – credit cards don’t have to be for financial emergencies only. Credit cards offer flexibility in your budget, more protection than a debit card and the ability to earn rewards. You stand to gain a lot by charging your expenses. But what about your rent or mortgage payments?
“Paying your rent or mortgage with a credit card will probably cost you more than it’s worth,” says Rebecca Gramuglia, personal finance expert at rebate website TopCashback.com. “Typically, mortgage lenders don’t accept credit card payments directly.” You may need to use a third-party payment processor to pay with a credit card, which means you could be charged a 2% to 3% fee.
Benefits of Using a Credit Card to Make Rent or Mortgage Payments
If charging your rent or mortgage to a credit card costs you money, why do it? Sometimes you can still come out ahead. Here are a few cases when it might make sense.
It could help you meet credit card spending requirements. Many rewards credit cards offer bonus points to new cardholders who meet spending thresholds within a certain period of time. If you’re considering an airline card that gives you a large points bonus if you spend $2,000 within the first few months of opening an account, for example, a hefty rent payment could help you reach that goal and score free flights.
“I used this approach specifically to reach the minimum spending requirements on rewards cards,” says Maggie Germano, founder and CEO of Maggie Germano Financial Coaching. “My monthly spending outside of rent did not amount to enough to get the rewards, but putting my rent on the credit cards allowed me to hit those minimums.”
The ongoing rewards might exceed the penalties with the right card. Rewards credit cards are a great way to earn points and money back on purchases you have to make anyway. If your rewards earning rate is higher than the fee you’d pay for using your credit card, it could be a good option.
That said, the typical cash back rate on a rewards credit card is 1%, so it’s more likely you’ll actually lose money, since fees to use a credit card usually run higher.
It gives you flexibility. Using a credit card to pay your rent or mortgage might be a good option if you find yourself short on cash and need to float the bill until payday.
However, this isn’t ideal. If you aren’t able to pay the balance by the end of the month, you end up paying interest on your rent or mortgage in addition to the initial fee. This can easily spiral into a debt problem that’s hard to dig out of, especially if you’re regularly spending beyond your means.
Even so, most people find themselves in a financial pinch every now and then. A credit card is a safer option than a predatory payday loan. Just keep in mind that regularly relying on your credit card is a sign that a bigger financial problem likely needs to be addressed…Read more>>