The first question that should pop into your head is “Why would I want to pay my mortgage with a credit card?” There is one and only one good answer: Rewards! Ah, those lovely credit card rewards. When you collect rewards responsibly (we’ll have more to say about that in a bit), they spread joy and make life just a little bit brighter. However, the other reason to use your credit card to pay your mortgage is a killer – using the card to spread out your payments because you can’t really afford your mortgage.
The gates of hell are, according to Dante, inscribed with “Abandon all hope ye who enter here.” One true path to financial hell is paying interest on interest, which is precisely what you will be doing if you pay your mortgage with a credit card (which isn’t all that easy, as we’ll see) and let the balance accumulate beyond the next payment date. Your mortgage payment, in the early years, is mostly interest. Adding credit card interest on top of mortgage interest is a complete financial non-starter – if you regularly have to do this, seek financial guidance from a HUD-approved adviser.
Back to rewards. You earn them from certain credit cards for making purchases. Let’s make this clear, we are NOT talking about using credit card cash advances, which do not earn points. Using these advances to pay your mortgage thrusts you immediately into the ninth circle of financial hell by charging interest for every day you don’t repay the advance. No rewards and daily interest mean you only take a credit card cash advance to keep from starvation or to pay for a major emergency.
Heavens, we seem to have stumbled into the dark woods – let’s climb back into the light, shall we?
Credit Card Rewards
Many credit cards provide rewards programs that allow you to collect points, frequent flyer miles or cash back. Generally, we’ll just refer to points, but we mean all three. You earn points by making purchases with your card. The programs vary by card and type of purchase. For instance, a travel-oriented credit card might offer you three points per dollar spent on airline tickets, but only one or two points per dollar on other purchases. The trick is to find the card that gives you the highest rewards for spending according to your normal lifestyle, and do so while charging the smallest annual fee.
Then there is the signup bonus. This is the credit card issuer’s “incentive” (read bribe) for choosing its card instead of a competitor. The signup bonus is a honking bonanza of points you get for signing up and charging a set amount of purchases within a limited time span, usually three months.
For example, one of the best travel-related credit cards is the Chase Sapphire Preferred. You earn 50,000 bonus miles when you spend $4,000 on purchases in the first three months, which is worth $625 in travel rewards or $500 in cash. Note that rewards programs change from time to time, so always check the latest information. The Sapphire card waives the $95 annual fee for the first year, and offers a number of travel benefits. Competitive travel cards are also offered by American Express and Capital One, among others.
Accumulating Points Responsibly
There are two premises for responsible point accumulation:
1. Never carry a balance beyond the initial payment date. The card companies might hate you for it, but it’s your hard-earned money, and you shouldn’t want to give it to them. If you pay your balance on time, they can’t charge you interest, but you gleefully get to collect your reward points. If you have trouble keeping a zero credit card balance, it means you are spending too much for your income. Increase your income or spend less, but don’t run a credit card balance – that’s the financially responsible way to live.
2. Never purchase items just to earn rewards points. You’re only reducing the net value of the points by doing this, since you are spending money on things you otherwise wouldn’t have purchased. If you are approaching the end date of the bonus period and are still a few hundred dollars short on required purchases, load up on household items you know you’ll need later in the year. For example, if you luncheon every day on pork and beans, buy a few extra cases to help you achieve the spending goal. Better yet, pay your mortgage with your credit card. Read on to find out how.
Paying the Mortgage
Paying the mortgage using your credit card only makes sense if the rewards outweigh the costs. The signup bonus period is clearly a time when you can afford extra costs, since the rewards are substantial. After that, it pays to examine the costs closely.
Paying the mortgage with a credit card does not mean using one of those “checks” that the credit card company sends you. Those checks represent cash advances, not purchases, and thus extract daily interest while not helping you collect any points.
So, the question now becomes, how the Dickens do you turn your monthly mortgage bill into a credit card purchase? There are a few ways, but the most cost effective is via an American Express Bluebird account, which is similar to a checking account but doesn’t involve a bank. With a Bluebird account, you can write checks, pay bills, capture mobile checks, perform direct deposits, transfer money, access ATMs and reap several membership benefits. All these features are free.
The Bluebird method has three steps:
1. Use your rewards credit card to purchase PIN-activated gift cards, the ones that say “debit” on the card face.
2. Load your Bluebird account from the gift cards.
3. Pay your mortgage from your Bluebird account.
You’ll also need access to a Walmart. Let’s examine each step more closely.
The Bluebird Approach
Buy Gift Cards
You begin your quest by purchasing PIN-activated gift cards (think of them as debit cards) in an amount sufficient to pay the monthly mortgage bill. You can buy these from Visa and MasterCard at stores like Kroger and Target in denominations up to $500. So, if your monthly mortgage payment is $1,500, you need to buy three $500 cards. They cost $4.95 each, so your initial cost is $14.85 per month. Of course, the mojo that makes this all work is to buy the gift cards with your rewards credit card. Yep, it’s a valid purchase and you rack up points just like you would with any other purchase.
In our example, you need $4,000 in purchases in the first three months to collect bonus points. By paying your mortgage via gift cards, you’ll have made $4,500 in purchases during the bonus period, earning you 50,000 points at a cost of $44.55. With a cash value of $500, you’ll be a cool $455.45 in the black. But you’ll have to expend a little time and energy to get there, so read on.
Load Your Bluebird Account
We mentioned that you need access to a Walmart store. Bluebird is a joint venture of American Express and Walmart. You open a Bluebird account at a Walmart store or on its website. It's free and not difficult, just fill out the form. Once you’re set up, you can fund your Bluebird account in several ways, but the one we want here is using your gift cards. The simplest method is to use the Bluebird kiosk at your local Walmart, where you swipe your PIN-activated gift cards into a reader and apply the money to your Bluebird account. Voila, you now have your mortgage money loaded for the month. Certain daily limits apply, so you may need to schedule multiple visits to Walmart each month.
Pay Your Mortgage
While you can’t load your gift cards online, you can use the online Bluebird Bill Pay feature to pay your mortgage every month. If you are the old-school type, you can order Bluebird checks and use them to pay your mortgage. It’s all free, so take your pick.
There you have it. For the cost of a few gift cards and the time you spend buying them and loading them into your Bluebird account, you’ve found a way to collect points by paying your mortgage. This same system works for rent, auto loans, or any other purchases.
There are a few online bill-paying services that allow you to pay your rent or mortgage directly from your credit card, but they are more expensive. For example, Plastiq lets you make payments but charges 2.5 percent. In our example, that’s $37.50 a month, so it’s more expensive than the Bluebird approach, but it’s also more convenient. You can also check out Tio, another bill paying service that charges fees. Finally, you can purchase money orders with your credit card, but it’s usually costly and inconvenient.