The pros and cons of charging your rent
By Erica Sandberg
September 26, 2014
I'd like to start using my card more for regular bills such as utilities and rent so I can stock up on rewards points, but I'm wondering if there is a downside to it. Do you have to be super organized, for example? —Greg
Until recently, I would have said, “Great idea, but you probably can't.” Now I say, “Great idea, and not only is it possible, but if you do it right, you can come out ahead.” As noted, though, if you do adopt an all-credit-all-the-time routine, you have to be vigilant with keeping your financial system in perfect working order.
More utility companies are letting their customers use credit cards to pay their bills, and even property owners are jumping into the fray. However, while such businesses as water, cable and power providers may allow you to charge those regular expenses at no additional cost, your landlord may add a small fee for doing so to your monthly rent.
The reason? Merchants usually assume the credit card transaction fees (usually a percent point or two of the bill) because it helps their customers spend money. It's embedded in the cost of doing business, and it behooves them when you pull out your plastic. The easier it is for you to spend money, the better!
Many utility companies are beginning to see other advantages of accepting credit cards. If it helps people pay on time or avoid default, they don't need to send out warning letters or place collection calls. Therefore, when utilities do take cards, they typically take on the transaction cost, too.
As far as rent, though, some but not all landlords absorb the transaction fees. Because rents can be so high, especially in desirable areas, transaction fees can make a dent in the property owner's bottom line. For that reason, some charge for the privilege of charging. Other landlords pay the fees, considering it a way to keep good tenants in the building. It's also a protective measure. After all, when cash is tight, a tenant may ask for an extension. When they use a card, they can borrow the funds from the issuer instead.
If you can and want to charge these living expenses, take these three steps:
- Make sure your credit limit can handle the charges. Settle on one credit card that has enough of a credit line where you never borrow more than 30 percent of the limit. That would be $3,000 for a card with a $10,000 limit. You'll protect your credit score this way, as well, because of what's called your credit utilization ratio.
- Be sure to pay the entire balance by the due date. With such large, constant expenses being added to your credit card account, you can get into horrendous debt very fast if you don't pay the bill in full every month. Review your budget carefully before making the decision to charge large, recurring expenses. If you don't have the financial discipline to pay off the card every month, then don't go there.
- Find out the fee, and decide if it's sensible. In the event your landlord does expect you to pay the fee, ask what it is and decide if it's worth it. Average transaction fees are around 2.75 percent of the rent amount. ($27.50 for a $1,000 rent payment), though some use third-party companies that assess a flat rate. Whatever the case, if every penny counts, it may not be worth the convenience.
As for the rewards, you are right! A huge advantage to ramped up charging is that you get to build up points at an accelerated pace. In fact, if you open a card exclusively for this purpose, you can really come out ahead. For example, some new accounts give 40,000 bonus points if you spend a few thousand dollars in the first initial months of usage. If you were to add the aforementioned expenditures to the card right from the get-go, you should achieve that goal without a speck of effort.
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