You can pay for darn near anything with a credit card, but financial experts are sounding the alarm about renters who are paying their rent using plastic.
There’s no one sitting behind a desk at those credit card companies that will tell you “no,” but because rent payments are typically a person’s largest monthly expense, they’ll be happy to take your money if that balance rolls over month to month and interest starts to snowball.
“With credit card debt hitting historic highs, surpassing the trillion-dollar mark, we are entering a precarious, new world of rolling defaults, especially if we see a cooling in the economy as the Fed continues to raise interest rates,” Lily Liu, the CEO of Piñata, the reward and credit building program for renters, told ConsumerAffairs.
“While it’s not their fault, most Americans aren't educated about financial wellness. So, when you consider the prospect of paying rent on a credit card it looks a lot to me like a dangerous proposition because it could spiral out of control in a hurry.”
By and large, Liu’s peers agree – especially when it comes to renters who are not completely aware of how the credit game is played.
Er Ankit Dhadwal, founder & CEO, of Mount Shine, said that on top of making life easier to split the rent bill with roommates, the biggest plus of paying the rent with a credit card helps build credit scores and increases credit limit. On the flip side, however, is another snowball effect waiting to happen.
“Its disadvantage is if a credit card bill is not paid on time, the balance could add up and make it difficult to clear the payment," Dhadwal said. "A long-term balance can spoil their credit score, and it will take time to build it again.”
Using a credit card and paying it off before interest hits can be a good way to earn rewards, but with the value of points/rewards continuing to dwindle, is that a good move?
“It’s a clever idea, but don't forget about the transaction fees,” Scott Lieberman, founder of TouchdownMoney.com, told ConsumerAffairs. “Earning 1.5% cash back doesn't do you any good if you're paying a 2.5% fee! So make sure you read the fine print and really do the math. Otherwise, your brilliant plan could backfire!”
The 'more fees' disease can plague credit card-paying renters, too
Another gotcha that a credit card-paying renter may not realize is that some landlords or property management companies that accept credit card payments may charge a convenience or service fee.
Another fee issue Pham sees a lot of comes from the time it takes to process a payment.
“Be aware of the time it takes for your credit card payment to be processed," Pham said. "If your rent is due on a specific date, make sure to pay early enough to avoid late fees.”