I was speaking to a new friend who just moved to my apartment complex. She told me that she had prepaid her rent for the whole year so that she did not have to worry about it.
I told her that I did not think it was a good idea to pre-pay the rent especially since she had such a large rent bill and the money could have been put to some other use.
She pays $450 a month and she paid 12 months up front. That means she paid $5,400 to the complex and no longer has use of that money. I told her my strategy was to pay with my credit card and then pay the credit card monthly. Of course I could also prepay a few months and pay the credit card that way as well.
My friend then informed me that she would only earn about $2 interest if she kept the money in the bank and it was not worth it. I realize that the money is already gone but I really want her to change her mindset. I don’t know what her interest rate is but let’s say she really only got $2 in interest. If she used the credit card strategy she would have made more than that.
The card I use for my rent pays 2% so she would get $9 per rent payment. At the end of the year she would have gotten $108 in cash back just for paying rent. Now this is not a mind blowing sum of money, but for a college undergraduate it adds up.
The other thing is that by pre-paying the rent she is giving the complex an interest free loan for a whole year. She could have put that money to better use doing something else…even if it was to earn $2, which would have compound interest with every redemption that takes place.
She still does not believe that is what it would come out to be and thinks it is not worth it to wait for the rewards to get cashed in.
Meanwhile, I will continue to pay my rent with my credit card because there is no fee for doing so. Any reward I earn is 100% mine to redeem.
Do you think it is a good idea to pre-pay your rent?