Paying Property Taxes with Credit Card

[Goawayrain]

Would like to get feedback on this idea. I am considering paying our property taxes with a credit card with an interest free grace period. Our property taxes are fairly significant and I would like to find some ways to turn lemons into lemonade. Here is what I'm thinking:

Assumed property taxes - $10k

The county's fee for paying with a credit card is 2.35%, so $235.

Pay with a new AmEx Magnet card which charges no interest for 15 months. The card provides 1.5% cash back plus pays a total of $250 in spend bonuses in the first year, so there would be $400 in bonuses. The card has no annual fee.

I would take the cash I would have used to pay the taxes this year and invest in a 12 month cd. Current rates are 2.55% at Barclays, so interest would be $255 in 12 months. After the cd matures, funds would be used to pay the credit card bill.

Net benefit then would be $400 + $255 - $235 = $420.

The cons I see are (a) the hassle of taking out the cd and paying everything in 12 months), (b) presumably a lower credit limit while carrying the balance

Am I missing something? I assume there might be other credit cards and/or cd's that make this a better opportunity but want to make sure I'm not missing something painfully obvious. Thanks!

 

[Fedup]

I didn’t do it because of the fee. Too much headache for small gain. But it sounds like you have a plan.

 

[RunningBum]

I'd be a little surprised if you don't have to pay a minimum balance each month, but maybe it'd be just $25, so that's negligible on the calculations.

The $250 spend bonus can be earned on purchases not charging you 2.35%, so I don't think that's really valid to include. For that matter, you can buy those things to get the bonus, and let your balance climb while you invest the money, and pay it off at the end.

The $10K property bill sounds like a convenient big expense now that you can load onto your card to get more money working during that interest free period. Plus not all places take Amex. But you're paying that $235 for this convenience.

If it were me I'd hold off on the new card until I had a major expense coming that wouldn't cost me 2.35% to use the card. If that's possible.

 

[gerntz]

Paying taxes isn't making a purchase. Sure Amex pays up for this? Were I a government, I'd want my full tax payment & not have to give Amex anything.

 

[Goawayrain]

Good points

For my other large expenses (i have a few coming up), I was thinking of getting a card with a more generous spend bonus. The $250 is not great, but for an interest free card, it's not bad. So, I'm not sure I would need the card for other large expenses

 

[TwoByFour]

I would be cautious about getting reliant on schemes such as the one you created in order to pay taxes. Is is sustainable? Will it work every year? What if something goes wrong?

You will probably be better off to figure out how to save money to pay taxes. Get the CD interest and avoid the 2.35% fee to begin with.

 

[Goawayrain]

Thanks. It's not an issue of not being able to pay the taxes and needing to save to pay for them. I have the money - it would be invested in a cd for 12 months to earn interest during the card's interest free period.

To me, it was an opportunity to get some credit card cash back (plus a very small spread between the card charge and the cd interest).

I'm not sure if it's sustainable. In theory I would have to take out a new card every year for at least the spend bonus. Otherwise, it would be just the 1.5% cash back that would be the benefit (assuming the fee charge and cd rates are essentially a wash)

 

[MichaelB]

It's unusual for a gov't to accept a cc to pay taxes and not charge an additional 2%-3% to cover their fee. I would make sure there is no charge to use the card.

If there is no additional fee, I'd use a cash back card without hesitation.

 

[Goawayrain]

There is a fee - it's 2.35%

 

[MichaelB]

There is a fee - it's 2.35%

Missed that - sorry.

 

[bingybear]

Will the card see this as a purchase or a cash advance?

 

[Goawayrain]

That's a good question, Bingybear. I can't think of a reason it would be treated like a cash advance, but definitely something to research. It seems odd it would be treated like a cash advance, but definitely a reason to read the fine print

 

[Lakewood90712]

Interesting. Be sure on that issue of purchase , not a cash advance.

Reminds me of back in the early 2000's buying "I" bonds with a Discover card. Got the cash back from discover. No fee from the US Gov.

The Gov. shut off this purchase method after a couple of years.

 

[Spanky]

I think your calculation is slightly off. The net gain of using the card is $277.5. The $255 from CD investment should not be counted as it is independent of using the card to pay for the property. You could get $255 in interest even if you pay in cash. Thus, you get $250 for spending $1000 in 3 months and 6,500 in 12 months. The cash back is $262.5 -- 1.5% of $7500 + $10,00. The net gain before tax is $277.5 (250+262.5-235).

Sounds like a good deal!

 

[RunningBum]

I think your calculation is slightly off. The net gain of using the card is $277.5. The $255 from CD investment should not be counted as it is independent of using the card to pay for the property. You could get $255 in interest even if you pay in cash. Thus, you get $250 for spending $1000 in 3 months and 6,500 in 12 months. The cash back is $262.5 -- 1.5% of $7500 + $10,00. The net gain before tax is $277.5 (250+262.5-235).

Sounds like a good deal!

How would you get $255 from a CD when you've spent the $10K on paying the taxes, as opposed to leveraging the card?

 

[Goawayrain]

I think your calculation is slightly off. The net gain of using the card is $277.5. The $255 from CD investment should not be counted as it is independent of using the card to pay for the property. You could get $255 in interest even if you pay in cash. Thus, you get $250 for spending $1000 in 3 months and 6,500 in 12 months. The cash back is $262.5 -- 1.5% of $7500 + $10,00. The net gain before tax is $277.5 (250+262.5-235).

Sounds like a good deal!

I may not be understanding your point re the cd interest. I included it because if I didn't use the card to pay the taxes, the $10,000 would be used to pay the taxes. The thinking is that I now have $10,000 extra to invest for 12 months by using the interest free grace period, I have the incremental income from the freed up cash. And, yes, this is all pre-tax...thanks!

 

[Spanky]

I may not be understanding your point re the cd interest. I included it because if I didn't use the card to pay the taxes, the $10,000 would be used to pay the taxes. The thinking is that I now have $10,000 extra to invest for 12 months by using the interest free grace period, I have the incremental income from the freed up cash. And, yes, this is all pre-tax...thanks!

Essentially, you are freeing up $10K to do whatever you want for 15 months. Interests from the CD should count. Thanks for the clarification.

 

[davebarnes]

My fair city, The Socialist Paradise of the City & County of Denver, does not charge fees for using credit cards. I pay property taxes with a credit card.

I am playing the miles/points game.

I also pay utilities with a credit card.
My power company charges a flat $3.50 fee so I pay $1000 at a time.

 

[W2R]

We have a fee for paying property taxes by credit card. I don't remember how much except that it seems like a lot.

I prefer to just tell the Parish (=County) to take my property taxes directly from my checking account, which incurs no fee.

They do it, and it's done. Then I can completely banish property taxes from my mind for 364 days, and move on to the near infinite plethora of more interesting aspects of retirement. And, I don't have one more credit card to carry around in my wallet.

Maybe this is not as financially advantageous, but I like just being done with it.

 

[audreyh1]

My fair city, The Socialist Paradise of the City & County of Denver, does not charge fees for using credit cards. I pay property taxes with a credit card.

I am playing the miles/points game.

I also pay utilities with a credit card.
My power company charges a flat $3.50 fee so I pay $1000 at a time.

I would definitely pay my property taxes via credit card if they city imposed no fee. But they impose a pretty hefty one.

 

[Spanky]

Pay with a new AmEx Magnet card which charges no interest for 15 months. The card provides 1.5% cash back plus pays a total of $250 in spend bonuses in the first year, so there would be $400 in bonuses. The card has no annual fee.

Just curious - Is the $10K paid all at once? If that's case, AMEX only pays $150 for spending $1,000 or more in purchases with your new Card within the first 3 months of Card Membership. If the tax payment was bi-annual, $250 is right.

 

[catotx]

I pay my property tax by credit card. The fee is 2.5% but my credit card rebate is 2.625%. So I still win a little, plus I get the float of the money until the CC bill is due.

 

[Spanky]

I would definitely pay my property taxes via credit card if they city imposed no fee. But they impose a pretty hefty one.

I am not aware of any governmental agency would accept credit card payment without fee. If existed, I would rather pay with a credit card with cash back also.

 

[Goawayrain]

Just curious - Is the $10K paid all at once? If that's case, AMEX only pays $150 for spending $1,000 or more in purchases with your new Card within the first 3 months of Card Membership. If the tax payment was bi-annual, $250 is right.

Great catch. I can pay bi-annually, but there is a slight penalty. The AmEx was one example - I haven't researched all possibilities. Discover, for example, has a card that gives 1.5% and then matches it at the end of the year for an effective 3% (so, $300 not $400). I would have to explore the different options (and paying bi-annually) to see what the best option is and if it's worth the effort

 

[Spanky]

I pay my property tax by credit card. The fee is 2.5% but my credit card rebate is 2.625%. So I still win a little, plus I get the float of the money until the CC bill is due.

Our county charges 2.29% service fee. Cash back from AMEX is only 1%. A introductory credit card as described by the OP may be okay but only at the beginning (the first 15 months). I guess you could always cancel it after that period.