Pay Rent with a Credit Card?

Nov 15, 2013 by

shooting yourself in the footAmong Ms. Money Counselor’s readings in, as someone cleverer than me once described it, “the Armageddon series” is the blog Greater Fool run by Garth Turner. I’m not a follower of Greater Fool only because I’m presently subscribed to 112 blogs and one has to draw the line somewhere (I think?), but I gather Mr. Turner’s stock in trade is the over-indebtedness of Canadians as a whole and more particularly the bubbly Canadian real estate market.

How RentMoola™ Works

Ms. Money Counselor alerted me to an article by Mr. Turner in which he simultaneously pokes fun and expresses horror at RentMoola™, a company with the aim of convincing renters and condo owners to pay their rent or condo fees with a credit (or debit) card. RentMoola™ seeks to establish itself as the ‘middleman’ between tenants and landlords or condo owners and condo associations. For the service, RentMoola™ charges a fee equal to 2.75% of the rent or fee. If your rent is $1,000 per month, that means you’d pay RentMoola™ $330 per year, or about 1/3rd of another month’s rent, or 6% of the 2013 (and 2014) IRA contribution limit (if you’re younger than 50-1/2).

So what benefit does RentMoola™ provide in exchange for your 2.75% fee? Why, the privilege of paying your rent or condo fee with a rewards credit card!

Rather than me wasting your time explaining, let’s watch a RentMoola™ marketing video featuring Lauren, who surely was not “focus grouped” but claims to now be going to Paris thanks to RentMoola™.

RentMoola™’s Pitch

So RentMoola™’s whole pitch is that you’ll accumulate rewards faster on your credit card if you pay for more stuff—rent, for instance—with your rewards credit card. Presumably that will be worth $330 per year (in my $1,000 monthly rent example) to you. Never mind that Lauren would have had more money to spend in Paris—the money she paid RentMoola™—if she’d had the patience to accumulate travel rewards in ways that don’t cost her extra money.

Setting Yourself Up for Failure

Though she doesn’t look it, let’s assume Lauren’s human. Things happen to humans: they get laid off, they have big unexpected expenses that exceed their savings, they forget that the credit card payment is due. Let’s say one of these events happens to human Lauren and she’s got an extra $1,000 on her credit card thanks to her RentMoola™ enrollment.

Lauren has at least one characteristic of people who tend to have poor credit scores: she wants to have things NOW. Since this is the sort of consumer to whom RentMoola™’s pitch is designed to appeal, I think it’s reasonable to assume for this example that Lauren’s credit card APR is a hefty 29.9%.

The monthly interest expense cost of an extra $1,000 in rent on Lauren’s credit card is about $25.

Now Lauren’s enrollment with RentMoola™ is costing her

$27.50 RentMoola™ monthly fee

+

$25 interest expenses

=

$52.50 per month

 

Using RentMoola™ Will Cause Your Credit Score to Drop

And that’s not all. One factor considered in credit scoring is the percentage of your total credit—the sum of all the credit limits on all your credit accounts—that you’ve borrowed. According to “Understanding Your FICO Score,” how much you owe compared to your borrowing capacity comprises a whopping 30% of your FICO credit score. If Lauren’s credit limit on her sole credit card is $5,000, the additional $1,000 rent that will be outstanding much of the time is a sizable chunk of her limit. If nothing else changes, her credit score will drop because of her enrollment in RentMoola™. And a lower credit score will hurt Lauren and cost her money in all sorts of ways. If her APR wasn’t 29.9% to begin with, it may be after she signs up with RentMoola™.

For Those Who Are Perfect, RentMoola™ May Pay Off

If you’ve got a great rewards credit card and you actually use the rewards and you do the math to confirm that rewards earned through RentMoola™ will far exceed the service’s cost and there’s no chance at all that you’ll ever not pay your credit balance in full then maybe, maybe RentMoola™ would pay off for you. For the other 99% of us, RentMoola™ is a really bad idea.

Would You Pay a Fee to Accumulate Credit Card Rewards Faster?

Forget about RentMoola™ for a moment, let’s broaden the question. Would you pay a fee to accumulate credit card rewards faster by charging more on your card than you otherwise could?

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