Sometimes consumers face significant financial emergencies that they cannot avoid, such as medical problems or car trouble that can take a huge chunk out of their monthly budget.
The result of these financial difficulties can be that, at the end of the month, they simply might not have enough money on hand to pay their mortgage bill. As a consequence, with few other options to which they can turn, many borrowers may choose to put their monthly mortgage payment on their credit card bill.
But some experts are divided on whether this kind of move is a good idea. For one thing, it can significantly imperil financial soundness going forward, because it adds a large amount of debt – usually more than $1,000 – to a borrower’s credit card balances in one fell swoop. This can make it easier to max out their cards in the future and increase the cost of their minimum payment every month, among other problems. For instance, such a decision will have a bit of a negative impact on their credit rating because it will further increase their credit utilization ratio, which itself makes up 30 percent of a score.
The best advice consumers who want to make this type of payment using a credit card can receive is likely to simply be careful and assess their options. When facing the choice of falling behind on a bill or putting it on a card, they must consider how badly their credit will be damaged if they miss a mortgage payment, and allow that to shape their overall decision, especially based on their current credit standing.
However, they might also want to think about the kinds of accounts they have. If, for instance, they have credit cards that are still in their 0 percent interest on purchases introductory offer, there will likely be relatively little harm in adding this debt, as long as it can be paid off prior to the end of the trial period. Similarly – and this likely only applies to extreme cases – if they believe they will have a relatively easy time paying off the balance once the financial emergency has passed, they might even want to put the cost on their rewards card to earn perks.
Whenever borrowers are making a decision of this magnitude, however, they should consider how it will impact all aspects of their finances.
Image: kenteegardin, via Flickr