'Would You Buy A Penny For 2 Cents?' Pitfalls Of Paying Rent With Credit Cards To Unlock Travel Rewards And Bonuses

Paying rent with a credit card to earn travel rewards and bonuses or to raise your credit score might sound like a great idea. After all, who wouldn't want to rack up points for a vacation just by paying their usual bills? However, this strategy has some serious pitfalls you should be aware of before swiping your card.

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The Hidden Costs

While earning rewards on significant expenses like rent is tempting, the fees can add up quickly. When you use a credit card to pay rent, landlords often pass on the transaction fees to you, which can be as high as 3.5%. If your credit card only offers 2% cash back or similar rewards, you spend more money than you earn in rewards.

Are Rewards Really Worth It?

Talking to The Wall Street Journal, Brian Kelly, the founder of The Points Guy, puts it simply: "Would you buy a penny for 2 cents?" In other words, if you're paying more in fees than you're getting back in rewards, it's not a good deal. The math just doesn't add up.

However, while paying rent with a credit card usually comes with high fees that outweigh the benefits, some notable exceptions make this strategy more appealing. The Bilt credit card, for instance, offers a unique benefit: it allows you to earn travel rewards for paying your rent without incurring transaction fees. This means you can collect points or miles without the usual extra costs of using a credit card for such large payments.

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The Bilt card has attracted over one million people, mostly young adults, who signed up within 18 months of it being available on the market. However, waiving transaction fees is expensive for the banks underwriting these cards. That’s why the card costs Wells Fargo up to $10 million monthly and has proved not to be a good deal for the bank. 

Some credit cards also offer sign-up bonuses that are better than any monthly perks they offer. For example, if you spend a certain amount within the first few months, you can accumulate enough travel points to get international airplane tickets. And when you pay rent on this card or add other expenses to it, such as homeowners or car insurance, accumulating tens of thousands of points in months is easy. 

The Risk of Debt

The biggest danger of using credit cards for rent is accumulating debt. High interest rates can quickly wipe out any rewards you earn. If you cannot pay off your balance immediately, the interest charges will negate the value of any points or cash back you receive. According to the Federal Reserve, the average credit card interest rate is around 22%. Carrying a balance means you're losing money, not saving it.

Before paying your rent with a credit card, crunch the numbers. Ensure you can pay off your balance immediately to avoid interest charges. Compare the fees you'll pay with the rewards you'll earn. If the fees are higher, it's probably not worth it.

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