Undoubtedly rent payment is one of the biggest monthly expenses in your budget. It is significant to pay your rent on time as you may not have the liberty to skip making payments. An unfortunate cash crunch or any financial disruption just like the one caused by the COVID-19 pandemic can leave you in a tight spot. In such situations, you may think of paying your rent using your credit card, however such payment can have an adverse impact on your financial health. Here we will discuss whether you should or should not pay your rent using a credit card.
Should You Use Your Credit Card For Rent Payments?
For those who pay their credit card dues every month may find rent payment using credit card as another convenience. But if you have paid your rent using your credit card and in the end, you do not have sufficient funds to clear your credit card dues on time, then it would lead to heavy interest charges and would adversely affect your credit score.
What To Do When You Are Facing Financial Crunch?
If you are a tenant and facing financial hardship due to ongoing lockdown imposed due to the coronavirus pandemic or any other reason, the first ideal thing to do is discuss your situation with your landlord. The best-case scenario would be if the landlord allows you to defer rent payments.
However, if you are out of options and your last resort is a credit card, you would need to understand that paying off rent through credit cards can help to avoid the short-term financial crunch. Such relief would last for a month or so because at the end you will be required to pay credit card dues. It is to be noted that the interest on credit card dues, even if opting for EMI facility is substantial.
Suggested Read: Major Credit Card Mistakes to Avoid
Pros And Cons Of Paying Rent With A Credit Card
Using a credit card can lead you to pay more interest (approximately 30-40%) per annum, still, it is useful in some situations when you don’t have quick money in hand and lack liquidity. Below are some of the advantages and disadvantages of paying your rent using a credit card-
|You can save cash if you are facing financial hardship||The credit card company will levy extra charges (approximately 2-4%)|
|By paying via your credit card you can earn reward points which can be redeemed further||Interest charges are substantially high on credit cards|
|Your credit history and score will improve if you pay the dues on time||Using credit card continuously for every expense can lead to negative credit score|
|Provides flexibility and increases your liquidity to pay your rent on time||Chances of missing payment in case if the credit limit exceeds or the card expires|
|You can automate the rent payment, hence no possible chances of missing payments||Payments which you may not have capacity to pay off in time, could risk leading to debt|
|Paying rent can help you to meet the required spending amount for earning bonuses||Increased credit utilization can negatively impact your score|
Factors To Consider Before Paying Rent With A Credit Card
The cost of paying your rent via credit card will increase substantially if you are unable to pay the credit dues on time. Hence ideally you should avoid paying rent using your card. But in case if this is the last resort left at your disposal, you should consider the following factors before opting for the same.
Rent payments via credit card often come with processing fees. For instance, if you have a rent payment of Rs.35000, and you are paying 2.99% processing fee, that’s an additional Rs.1046.50 every month.
- Interest Payments
If you don’t pay your credit card bill in full and on time, the interest payment on your outstanding balance can pile up. The hefty interest plus the processing fee would undoubtedly escalate the amount that you are required to pay.
- Effect on your Credit Score
Paying the rent with a credit card could lead to an increase in your credit utilization ratio, which on the other hand negatively affects your credit score. It is to be noted that your credit utilization ratio is a key factor in your credit score, so you should keep it low, generally less than 30%.
Read more about Lowering your Credit Utilization Ratio
How To Cover Your Rent Without Using A Credit Card?
If you are facing troubles paying your rent and don’t wish to use your credit card, here are some tips to help you cover your rent-
|Some tips to help you cover your rent|
|● Read the terms of your lease- Your lease should include details on your rights and options if you are unable to pay your rent|
● Communicate with your landlord- Explain your situation to your landlord. If possible, make a late or partial payment on a specified date
● Split your rent- Share your space with some trustworthy person to reduce your rent cost
● Move to a cheaper place- In order to get relief from paying hefty rent, you may move to a less expensive place
● Get a loan from family or friends- Taking a loan from family or friends can help you pay off your rent without paying high-interest charges
It is to be kept in mind that choosing a credit card for paying your rent will incur high-interest charges. The interest here is too steep at around 35-40% if the dues are not paid timely. This is an expensive option and of the worst debts to have. It is not at all advisable to go for a revolving credit option. Hence use it only if you are sure about your timely repayment capacity. This option is to be used as the last resort because paying off credit card bills will become hectic if your financial crunch does not end soon.