When it’s worth it to pay a fee for taxes, mortgages or car payments to earn rewards

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One of the biggest frustrations when it comes to earning miles and points is that so many of your largest expenses can’t be paid with a rewards credit card without tacking on extra fees. There are services, like Plastiq, that allow you to pay almost any bill with (most) credit cards for a 2.5% fee. You can also use PayPal or Venmo to pay with a travel credit card, but the fee is higher (around 3%).

The problem with this strategy is that the cash back or miles you’ll earn from these payments are often worth less than 2.5%, so you’re losing. But there are times when you’ll be able to earn much more than 2.5% in rewards.

Of course, it’s always best to not pay anything extra to earn rewards and right now with COVID-19 shutting things down there are even some companies that are waiving the extra fees. MMS staff have had their property managers reach out to let them know that the fee for paying rent with a card is being waiver for now. This is a case-by-case basis, but there are still situations where it makes sense to pay the extra fee.

Paying extra fees can be worth it to unlock big bonuses. (Photo by Inspiration GP/Shutterstock.)

When to pay a fee to earn credit card rewards

The principle is straight forward – it’s worth it to pay an extra fee to earn credit card rewards if the rewards are worth more than the fee. What can get confusing is figuring out exactly what the rewards you earn are worth. For example, my sister asked me about putting a big payment on her Chase credit card using Plastiq, which charges a 2.5% fee. She would have earned just one Ultimate Rewards point per dollar and while the value of Chase Ultimate Rewards points can vary, it wasn’t going to be a good deal.

You can redeem Chase Ultimate Rewards points as a statement credit for one cent each or you can use them to pay for travel booked through the Chase Travel Portal for 1.25 cents each with the Chase Sapphire Preferred Card (or Ink Business Preferred Credit Card ) or 1.5 cents with the Chase Sapphire Reserve. And they can be worth even more if you transfer them to one of Chase’s travel partners. I’ve transferred Chase points to airline partners to book expensive business-class seats and have gotten a value of over four cents per point. 

In my sister’s case, she wanted to use the extra points to book independent hotels through the Chase Travel Portal. So she would have been paying a 2.5% fee to earn 1.25% back in rewards with her Sapphire Preferred card. Since she didn’t have any interest in using Chase’s Transfer partners it would’ve been a terrible deal to pay the extra fee.

Even though it didn’t make sense for my sister to pay an extra fee to earn travel rewards, it can make sense in these situations.

When you’re working toward a welcome bonus

In general, the only time I choose to pay an extra fee to make a payment with a credit card is when I’m working toward earning a solid intro bonus. For example, I was recently approved for the Citi® / AAdvantage® Executive World Elite™ Mastercard® and will earn 50,000 American Airlines miles after spending $5,000 on the card in the first three months of account opening.

I’m essentially earning 10x American miles on that $5,000 in spending. I’m happy to pay a 2.5%-3% fee (a maximum of $150 in fees) to earn those miles because I fly American Airlines several times a year to visit family. These flights are to smaller airports and almost always cost $300+ round-trip, but thanks to American’s dynamic pricing (and my flexible schedule) I can regularly find round-trip awards for 10,000 miles. I anticipate being able to easily book $1,000-$1,500 in flights with the card’s bonus, which makes the $150 in extra fees and the $450 annual fee worth paying.

But my situation is unique and many of you will find it a better deal to open a card with a smaller annual fee, like the Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard® ($99 annual fee, waived the first 12 months) or the CitiBusiness® / AAdvantage® Platinum Select® Mastercard®  ($99 annual fee, waived the first 12 months).

Also, right now is a potentially great time to apply for an American Express card because Amex is extending the time you have to earn the welcome bonus by three months if you were approved between December 1, 2019 and by May 31, 2020. So you’ll have twice as long to earn the bonus on most of their offers, including American Express business cards, which generally have bigger spending requirements.

The information for the Citi AAdvantage Platinum and CitiBusiness AAdvantage Platinum card has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.

When you’re paying taxes (depending on what card you pay with)

Paying your taxes with a credit card can often be a good deal because the fees you pay for this privilege are less than the standard 2.5%+ you’d pay with other services. There are only three services you can use to make Federal tax payments and the fees range from 1.87% to 1.99%. Some of these service providers will also allow state tax payments, depending on the state.

If you can earn 2%+ back in rewards you’ll be making a small profit, so the Citi® Double Cash Card would work. But at 2% back the return is small (1% cash back when you buy and 1% as you pay), however there are some cards that can earn 3x back on everyday purchases. For example, the Discover it® Miles card earns 1.5x miles on all purchases and Discover will match all miles you earn at the end of your first card year. So for that first year, it’s essentially 3x miles on everything, including tax payments.

Other times, paying your taxes with a credit card can make sense if you’re earning flexible rewards. Both the Chase Freedom Unlimited® and Ink Business Unlimitedâ„  Credit Card earn 1.5% cash back (1.5x Chase Ultimate Rewards) on purchases and those points are more valuable if you pool them with a Chase Ultimate Rewards points earning card that enables you to transfer your Chase points to travel partners, like the Chase Sapphire Preferred® Card.

In the past, I’ve transferred Chase Ultimate Rewards points to Hyatt to book expensive hotel rooms and have gotten 3+ cents per point in value. In that case, paying my taxes with a card that earns 1.5x Chase Ultimate Rewards points makes sense because I’d be getting 4.5% back in travel for less than 2% in fees.

The information for the Discover it Miles card has been collected independently by Million Mile Secrets. The card details on this page have not been reviewed or provided by the card issuer.

When you’re trying to hit a spending threshold for a specific reward or perk

Lots of hotel credit cards and airline credit cards come with specific perks when you hit a certain spending threshold within a certain timeframe (usually a calendar year or card member year). By themselves, these perks and bonus usually aren’t worth paying an extra 2% to 3% to earn, but they can be in certain situations.

For example, if you’re trying to earn elite status with Hyatt you could put some purchases on The World Of Hyatt Credit Card. Just by having the card you get five elite night credits per year and you get an additional two elite night credits for every $5,000 you spend on the card. Plus you’ll earn a Category 1-4 free night certificate for spending $15,000+ on the card during the cardmember year.

Assuming you make the extra $15,000 in purchases using a service like Plastiq (2.5% fee) you’d pay $375 in fees and get the following:

  • 15,000 Hyatt points
  • One award night at a Category 1-4 hotel
  • Six elite night credits

For most people, that’s a solid deal because 15,000 Hyatt points are enough for another free night in a Category 4 hotel or three nights in a Category 1 hotel. It’s pretty easy to find a 2-night stay in a Category 4 Hyatt that costs $375+, so you can look at it as getting the six elite night credits free. Plus you’ll earn elite night credits on the two free nights too.

But depending on how many elite night credits you already have it can be an even better deal. Hyatt awards you a Category 1-4 free night when you stay 30 qualifying nights in a calendar year and you’ll get a Category 1-7 free night when you stay 60 qualifying nights in a calendar year. So if you’re close to either of those thresholds then it’s worth paying to put extra spending on the World Of Hyatt Credit Card. Plus, you’ll earn Hyatt Explorist status with 30 elite nights (or 50,000 base Hyatt points) and Globalist status with 60 elite nights (or 100,000 base Hyatt points) and those benefits can really pay off. You can also earn weekend reward nights when you meet spending thresholds on certain Hilton credit cards.

Bottom line

It doesn’t always make sense to pay an extra fee to earn a few extra credit card rewards, but in some cases, it’s definitely worth it. Services like Plastiq allow you to pay bills that normally can’t be paid with a credit card for a 2.5% fee and you can pay your taxes with a credit card for less than a 2% fee.

These fees are almost always worth it if you’re working toward earning a big intro bonus and they can even be worth paying in order to earn specific perks some cards provide when you spend a certain amount on the card. But outside of these special circumstances you’ll want to avoid paying these extra fees for your regular purchases.

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Jason Stauffer is a contributor to Million Mile Secrets, he covers topics on points and miles, credit cards, airlines, hotels, and general travel.

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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