Like most people who don't own a home, I pay rent every month.
This past Tuesday after I debited my monthly payment directly
from my bank account, I got to thinking: How many rewards points
could someone rack up if they paid rent with a credit card?
Source: Flickr/Cincy Project.
The crux of this decision depends largely on your rent, your
credit card, and the fee that your property manager will charge
you for using it. Fees for these credit card transactions are
unavoidable, because they cover the amount credit card companies
charge your management company for processing. Let's work through
Many miles, for a price
I have a card from
that gives me 1.25 miles for every dollar I spend, and my
property manager will charge me $40 to pay my rent with my
card. My monthly rent is $1,392; add to that the $40 fee,
and I'd really be paying $1,432 per month, yielding 1,790 miles.
After one year of paying my rent this way, I would earn 21,480
miles and pay $480 in fees. That mileage has a dollar value of
$107, based on Capital One's policy that 5,000 miles equals
Now, each month I am already committed to paying $1,392 one
way or the other. I have the cash on hand, so the real question
here is whether all those miles are worth $40 each month. What
sort of return could I expect if I put that money elsewhere?
To determine its value, let's consider some alternative
options for that money. Again, $40 a month is $480 each year.
Here's how its value breaks down when placed in a sock drawer, my
savings account (with my actual interest rate), or the stock
Savings Account (0.75% APY)
Stock Market (6.8% CAGR)
Source: Author's calculations. Stock market return is based on
Realistically, the sock drawer and the savings account options
would actually lose value if you factored in inflation,
especially if you used them for a longer period of time -- say,
10 years. Similarly, using the stock market's historical average
for a two-year period is not ideal, but these numbers do give us
the answer to our question.
Forty bucks per month for two years would result in $6.93 in
interest in my savings account, perhaps $32.64 in an index fund,
and $214 in credit card points. The problem with the credit card
points is that unlike the sock drawer or a savings account (and
hopefully the stock market), you lose your entire principal. In
other words, you are paying much more than you get in return,
which makes no sense. You are better off paying your rent in cash
and keeping that $480 in a drawer than you would be using it to
earn credit card points.
If your apartment management company charges you a fee --
which it almost certainly does -- then paying your rent with a
credit card is a giant rip-off.
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