Venmo is one of my favorite apps on my phone today. It makes paying friends or requesting money from friends incredibly simple. I typically use Venmo when paying for meals with friends. I’ll volunteer to pay for the meal (using my Chase Sapphire Reserve card of course) and simply request payment after the fact. This way I can take the final bill, divide it by the number of people, and request payment. Venmo eliminated the ordeal of trying to split a bill at the table which becomes increasingly difficult after a few drinks.
As much as I love Venmo there is one thing I can’t stand. I can’t stand the 3% fee for paying friends with a credit card. Obviously I understand why Venmo charges this fee (to cover their own processing fees), but wish they didn’t. The 3% fee is generally a reason to avoid paying friends with a credit card through Venmo, but are there situations where it still makes sense and you’ll come out ahead? Let’s take a look!
Paying Friends With A Credit Card Through Venmo
First of all, paying friends though Venmo with a credit card is extremely easy. Simply launch the Venmo app (sign-up if you haven’t), go to “settings,” then to “Bank & Cards”, and add a credit card. Once added make sure to select the “Payment To Friends When Venmo Balance Is Not Enough” check box and you’re all set. Now whenever you pay friends though Venmo the app will automatically chard your credit card instead of debiting your bank account.
Does It Make Sense To Pay Rent With A Credit Card?
If you live with a roommate or two chances are you can convince one of them to write a single check. In turn, you’ll Venmo them the money you owe. This way you all know you’re paying rent on time and the landlord only has one check to cash. Doing this through Venmo using a Bank Account is extremely easy and I highly recommend doing so as it just makes life easier. With that being said, does it make sense to pay your roommate while using a credit card to fund the transaction? To answer this question we’ll need to do some math.
Cash Back Credit Cards
For simplicities sake, let’s assume rent costs $1,000/mo. That means you’ll pay your friend $12,000/year for rent through Venmo. Venmo then charges you an additional 3% fee which brings your out of pocket total $12,360.
For the first card example let’s assume you pay your rent with the Chase Freedom Unlimited card which earns 1.5% cash back on all purchases. For the year of rent, plus fees, you’ll earn $185.4 in cash back. As you can see the cash back doesn’t cover the additional fees paid. You’re much better off NOT using a credit card in this scenario.
Another option would be to use the Citi Double Cash Card. As the name implies, this card pays you double cash back, or 2%. You earn 1% on each purchase, but an additional 1% when you pay off your balance. With this card you’ll earn $247.2 in cash back each year if you pay your rent with a credit card. Obviously this doesn’t offset the 3% fee Venmo charges, but you’re better of than if you used the Chase Freedom Unlimited card.
Rewards Credit Cards
Although Venmo charges a 3% fee, if you’re able to maximize credit card reward points you may be able to come out ahead in the end. As long as you get at least $0.03/point of value from your rewards points paying the Venmo credit card fee makes total sense. If you plan on using points to offset charges, buy gift cards, merchandise, or other terrible redemption options please avoid paying rent with a credit card.
For our fist example, let’s look at the Chase Sapphire line of cards. With any Chase Sapphire card (Regular, Preferred, and Reserve) you’ll earn 1 Ultimate Rewards point per dollar spent. At the end of the year you’ll have earned 12,360 additional points. If you put those to good use and get $0.05/point value out each point you’ll come out on top. In fact, the 12,360 points would be worth $618 which easily covers the additional $360 of spending.
You can make the same case for Citi ThankYou cards and American Express Membership Rewards cards. As long as you’re earning and maximizing flexible points currencies you’re going to come out on top.
How To Maximize Earning Potential When Using A Credit Card
There is one scenario that I believe is the most lucrative option out there. To maximize points earning when paying friend with a credit card through Venmo you should do the following. First, use your Chase Freedom Unlimited card to fund Venmo. This way you’ll earn 1.5% cash back on all transactions. Next, transfer your Chase Freedom Unlimited ‘points’ to the Ultimate Rewards portal (you’ll need a Sapphire card). By transferring Freedom cash back to the Ultimate Rewards portal you’ll get more value from your points. By following this strategy, you’ll earn an additional 6,180 Ultimate Rewards (18,540 total) points than if you paid with a Sapphire card directly. Those extra points are worth an additional $309 of value assuming you’re redeeming points at $0.05/point which is extremely manageable.
Hitting Credit Card Sign Up Bonuses
There is one situation where it always makes sense to fund Venmo via a credit card. That is when trying to hit a minimum spending requirement for a sign-up bonus. If you’re otherwise not going to spend enough within timeframe it absolutely makes sense to fund Venmo with a credit card. Missing out on a large credit card sign-up bonus is a huge mistake. You should do whatever you can to meet the minimum spend as long as you’re not overextending yourself.
Final Thoughts
For the past several months I’ve always used a credit card through Venmo to pay rent. It definitely hurts to pay a few extra dollars each month in fees. I do so because I assume I’ll be able to realize the value later on. Funding Venmo transactions with a credit card is definitely not for everyone. Anyone looking to do so should understand the logic behind it. Unless you think you’ll be able to get at least $0.03/point of value from doing so, it never makes sense. At no point should anyone fund their Venmo account with a simple cash back card earning less than 3%.
Lastly, if you rent from a larger management company you may be able to pay rent via an online portal. From my experiences many of those rent payment portals charge approximately 1% to 2% for credit cards. These lower fees further help the economics of paying rent with a credit card.
Either way, whenever using a credit card to fund large purchases, rent. etc. make sure that you have the funds to cover the charges. You should never spend more on a credit card than you can pay off in a single month because the interest charges will destroy any benefits you hope to realize.
Note: If your goal is to earn 110,000 miles to fly Lufthansa First Class it’ll take at least 6 years. In that timeframe you’ll have paid an additional $2,136 in rent! You may be better of saving the cash as there’s no guarantee in 6 years that first class still costs 110,000 points. Points tend to become less valuable over time, cough Delta cough.
Featured Image Courtesy of Blog.Venmo.com
