Credit cards might seem like a luxury but they're more useful than their financial implications would have you believe. The best thing about them is that these plastic pieces of hardware give us access and control over our finances without sacrificing any sort of security, peace, time, or wisdom.
With the recent rise in non-cash payments, credit card collection is an important role that landlords must be able to fulfill. Landlords depend on rent money and any issues with collecting it can have serious consequences for their business operations. Accepting these types of transactions may help solve some problems you've had when dealing with late or missed payment from tenants before now - think about how much worse things would feel if they were coming into your bank account regularly but not happening at all just because someone didn't pay their bill on time?
It's important that you consider the benefits and downsides before making this decision whether you are the landlord or the tenant. Here are some things worth considering when determining if it will work out well for YOU in terms of convenience as well as other potential issues/concerns with doing so.
As a landlord or if your landlord accepts credit card payments directly, they typically have a software system set up to accepts the payments either on-line or in person. A lot of times there are fees associated with the payment. These are called processing fees and/or service charges. For example, if the processing fee to use the credit card is 3%, your $1,200 rent will become $1,236. Please make sure to check with your landlord to know all the details.
If your landlord or management service does not accept credit cards as a payment option. You can consider a third-party service. In some cases, your payment activity might also be reported to one or more credit bureaus, allowing you to build good credit by paying your rent on time. They have perks and reward points that you can earn as well. With these services, some can take your payment, turn around, and mail your landlord a check or electronic payment. Some of these platforms need the landlord to join, so check with your landlord /management company to see if they have an account with any of the third-party services. Remember, they all have a fee with their service, please check the details before you decide. Some of them include:
Now if charging your rent on a card costs you more money then why do it? In some circumstances it makes sense, here are a few reasons why…
If you find yourself needing extra funds in the bank one month and payday is just around the corner, you may want to float your payment to a credit card to give yourself more time. However, this is not ideal if doing this month to month. Remember, you are paying interest on the credit card as well as a service/processing fee for the payment from your landlord. This can become very expensive in the long run and put you into a debt problem easily. We all can get into a financial pinch, using a credit card is a tool to help. For this reason, using a credit card to buy time should only be considered as a last resort option as it can lead to a cycle of debt.
Points, cash back, SkyMiles. We all love those! For example, if you have a card that you use for traveling and you are so close to getting the upgrade or free room you have been working hard for, using your card for your rent could just get you to that goal. If your rewards earning rate is higher than the fee, you'd pay for using your credit card, it could be a good option. Keep in mind, you may end up paying more in processing fees by your landlord since services are often higher. Do your homework to see if this is a good plan.
There are many rewards or bonuses for new card holders. Especially if you reach a spending threshold in a certain period of time. There are some cards that will give you double points, cash back or miles if you reach a certain monthly purchase balance every month. For example, if the new card you just opened gives you double cashback if you spend $1,000 the first month, paying your rent could get you that goal. Using this option make sure you have a solid plan to pay your balance on your card before the next month rolls around. Like we stated before, credit cards are tools to get you financially ahead, not in debt. When used correctly they are one of the best creative financing tools around.
Some Disadvantages of using your credit card to pay rent
While in a pinch to get you through a tough month, remember there are fees attached to any third-party services, or processing fee from your landlord/management company. Let alone the interest rate and fees attached to your credit card. If using it frequently, it can add up quickly and be very expensive throughout the year.
Credit cards are convenient, especially if you need to charge rent. However, they can lead to debt and the cycle of interest rates that will harm your financial situation in more ways than one! The average credit card balance is 16% now- but what happens when we roll this payment into the next billing cycle? Expect an increase by at least 1%, even double or triple depending on how much was already owed before - which means not only does paying off any existing owe amount become harder every day (since our income doesn't grow fast enough) This can be a risk to your credit. Charging your rent to a credit card will likely lead you into an endless debt cycle IF you are not using it wisely.
All things considered whether you are a tenant paying rent with your credit card or a landlord offering this service to your tenants, we can agree this service is a profitable option to have on either side. Building your real estate business with more avenues to make your return as an investor/landlord. Also, by giving the tenant ways to use their credit cards as creative financing tools to boost their credit, gain rewards on their cards and so on. So many opportunities, as well as disadvantages if not done correctly. Weigh the benefits and downsides as they relate to your financial situation, so you can make the best decision for your circumstances.
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