Paying rent can be a real challenge, especially with the increasing financial burdens faced by many Americans. In fact, a recent report by Harvard revealed that more than 21 million households spend over 30% of their income on housing, with 11.6 million of them spending more than 50% of their income on rent alone. Given these circumstances, it’s no wonder that some people are considering paying rent with a credit card. But is it a good idea? Let’s explore some important factors to consider.
Things to Consider Before Deciding to Pay Rent with Your Credit Card
It adds to your debt
While it may seem convenient to charge your rent to a credit card, it’s important to remember that Americans already carry a staggering $866 billion in credit card debt as of September 2022. Adding to this debt through high-interest credit card payments is generally ill-advised. Even if you currently have no credit card debt, it’s unlikely that you’ll always be able to pay off your balance in full every month. Carrying a high balance can increase your interest payments and negatively impact your credit score.
It creates uncertainty of outcome
Using third-party apps to pay your rent introduces an element of uncertainty into the process. These apps have control over your method of payment, and if they freeze your account for any reason, you could miss a rental payment. Additionally, there’s a higher risk of accidentally sending your payment to the wrong place compared to traditional payment methods like checks or electronic bank transfers.
It can generate fees
Landlords who accept credit card payments for rent may pass on the processing fees charged by credit card companies to you. Similarly, if you use third-party apps to make payments, you may be subject to transaction fees. These fees can significantly impact the overall cost of paying your rent with a credit card. Therefore, it’s crucial to factor in these fees when weighing the benefits against the costs and risks.
When Does It Make Sense to Pay Rent with Your Credit Card?
In some cases, it may make sense to pay rent with your credit card. For instance, if you need to reach the minimum purchase requirement for a credit card’s introductory offer, using your card for rent payment can help you meet that requirement. However, it’s important to pay off the rent amount immediately to avoid accumulating interest charges. Similarly, if you can receive significant cashback rewards that outweigh the fees associated with paying rent with a credit card, it may be worth considering. Nevertheless, it’s essential to carefully evaluate whether the benefits truly outweigh the costs.
3 Ways to Pay Rent with Your Credit Card
If you decide to pay your rent with a credit card, here are three popular methods:
Cash App
Cash App allows users to automate rent payments using a credit card. However, this convenience comes at a cost. If your landlord uses Cash App’s small-business account, known as “Cash for Business,” a fee of 2.75% per payment will be applied.
PayPal
Another option is PayPal, a widely-used digital money transfer service. While payments directly from a bank account are free, credit and debit card payments incur an additional 2.99% fee along with a fixed fee.
MoneyGram
MoneyGram is a service that facilitates money transfers and payments, including the option to pay rent with a credit card. However, payments are limited to $3,000 per 30 days and involve a fee ranging from $1.99 to $12.99.
Is Paying Rent with a Credit Card Risky and Pricey?
In general, paying for rent with a credit card comes with its risks and costs. It can trigger interest charges on your credit card, potentially leading to additional debt. Moreover, depending on the method or service used, there may be processing fees involved that further add to the overall expense. Unless you’re confident that you can pay off the credit card balance in full each month and reap enough rewards or cashback benefits to make it worthwhile, it’s best to refrain from paying rent with a credit card.
Frequently Asked Questions (FAQs)
Can I boost my credit score by paying rent with my credit card?
Putting rent on your credit card may have an impact on your credit score, but it’s important to note that not all credit bureaus incorporate rent payments into their reports. If you use up your available credit without paying it off, it may lower your credit score.
Can I pay bills with my credit card?
Yes, you can pay most service bills with your credit card. However, it’s crucial to assess whether you can consistently pay off your credit card balance to avoid accumulating interest charges.
Can I buy a car with a credit card?
While some car dealers may allow you to purchase a car with a credit card, it’s generally not advisable. The interest rates on credit cards are typically much higher than those on auto loans, making it an expensive option.