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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 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.
The credit card miles you’ll earn from these payments are often worth less than 2.5%. But when you’re paying your taxes, the fee will be less than 2% and sometimes you’ll be able to earn much more than 2.5% in rewards. So there are situations where it makes sense to pay the extra fee.
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When It’s Okay to Pay a Fee to Earn Credit Card Miles
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.
My sister recently called to ask about putting a big payment on her Ink Business Preferred℠ Credit Card using Plastiq, which charges a 2.5% fee. The Ink Business Preferred card earns Chase Ultimate Rewards points and the value of Chase Ultimate Rewards points can vary.
You can cash out Chase Ultimate Rewards points as a statement credit for 1 cent each. Or you can use them to pay for travel booked through the Chase Travel Portal for 1.25 cents each. 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 4 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. 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.
1. When You’re Working Toward a Big 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, recently my wife was approved for the Ink Business Preferred℠ Credit Card and she’ll be able to earn 80,000 Chase Ultimate Rewards points after spending $5,000 on purchases in the first 3 months of account opening.
She’s essentially earning 16X Chase Ultimate Rewards points on that $5,000 in spending (80,000 Chase Ultimate Rewards points bonus/ $5,000 in minimum spending). I’m happy to pay a 2.5% fee to earn 16X Chase Ultimate Rewards points which are worth, at a minimum, 1 cent each as cash back.
If we paid a 2.5% fee on the entire minimum spending amount that’d be an extra $125 we’d pay, in addition to the card’s $95 annual fee (it’s not waived the first year). But in reality, we’ll end up paying much less than 2.5% on the $5,000 because part of that amount will be met by making tax payments.
2. When You’re Paying Taxes (Depending on The 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 3 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. 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.
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 Unlimited℠ 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.
3. When You’re Trying to Hit a High Spending Threshold to Earn a Specific Reward or Perk (Maybe)
Lots of rewards credit cards come with specific perks when you hit a certain spending threshold within a certain timeframe (usually a calendar year or cardmember 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 5 elite night credits per year and you get an additional 2 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
- 1 free night at a Category 1-4 hotel
- 6 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 3 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 6 elite night credits free. Plus you’ll earn elite night credits on the 2 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!
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.
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