I use this simple trick to earn big credit card sign-up bonuses - here's how other homeowners can do the same
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- Escrow accounts are common alongside of a mortgage, but you can pay property taxes and insurance on your own.
- Most insurance companies accept credit cards for payments, as do counties for property taxes.
- While there may be transaction fees, earning a sign-up bonus on a new credit card may be worth the cost.
- Some of the best credit card bonus offers right now include the Platinum Card® from American Express, Capital One Venture Rewards Credit Card, and Chase Sapphire Preferred Card.
Many travel and cash-back credit cards offer sizeable sign-up bonuses after meeting certain minimum spend requirements within a few months of opening a new account.
But what should you do if you don't typically spend enough to get those credit card bonuses? If you're a homeowner, you may have access to a secret trick to help you spend enough to get the credit card bonus without changing your spending patterns today.
Spend enough to get credit card bonuses by skipping the escrow account
The best way to earn a credit card reward bonus is by spending money you would have spent anyway. Some savvy shoppers do this by stocking up on household items or pre-paying a large expected expense.
If you own a home, you have two major expenses every year that you probably don't put on a credit card: homeowners insurance and property taxes.
Read more: Preferred vs Reserve: How the Chase Sapphire credit cards stack up
Many homeowners opt for an escrow account when they buy a home, which allows them to save for their annual homeowners insurance and property tax payments in monthly increments included in their mortgage payment. But those escrow accounts aren't always required, especially if your mortgage balance is less than 80% of the value of your home.
If you can manage your money well enough to budget for a major lump payment a few times a year when taxes are due, paying your taxes and insurance on a credit card may make sense for you - if you can turn it into a large credit card bonus.
I live in a high-tax state and pay extra for earthquake insurance (thanks California!), and skipping escrow on my property taxes gives me an extra $8,000 per year in credit card spend. Homeowners insurance, including the earthquake addition, runs about $5,000 per year. If I sign up for any credit card, I have about $13,000 in annual expenses I can use for a bonus if the timing is right.
Even in a lower tax state without regular earthquakes, you can likely come up with enough in taxes and insurance to meet a $3,000 to $5,000 sign-up bonus.
Some of the best current bonuses with a large spend requirement include the American Express Platinum Card (60,000 points after spending $5,000 in the first 3 months), Capital One Venture Rewards Credit Card (50,000 bonus miles after spending $3,000 in the first 3 months), and Chase Sapphire Preferred Card (50,000 bonus points after spending $4,000 in the first 3 months).
Watch out for transaction fees when putting taxes on a credit card
While paying your taxes with a credit card can be a fast track to valuable rewards, it often incurs additional costs. Most tax payments require a service fee when made with a credit card that is not required when you pay with a check or from a bank account. But if the bonus is big enough, the fee could be worth it.
Property tax payments are usually made through your county, so check your county's website to find out if it's possible to pay by credit card and what fees you could be charged. For federal and most state income taxes, you can also pay with a credit card for a service charge.
Read more: Chase Sapphire Reserve vs American Express Platinum: Which premium credit card is right for you
While it typically isn't worth the fee for regular tax payments, a big bonus could justify a couple of percent extra in fees. For example, if you were paying $5,000 in property taxes to get a 50,000-point bonus, you would spend $100 on process fees at 2%. But if those points are worth 2 cents each, a 50,000-point bonus is worth $1,000 - 10x more than the fee.
You can do similar math for your property taxes or income taxes. If you are self-employed or own a business, you can also pay quarterly estimated taxes on a credit card. You can even overpay your taxes with your credit card to get the bonus knowing you will get a tax refund next year when you file your income tax return. Just make sure you always do the math before paying a fee to make a credit card payment.
Pay your credit card balance in full when using this strategy
Taxes and property insurance are nothing to take lightly, so only follow this credit card payment strategy if you can pay your credit card balance in full. If you will carry a balance from month to month, you are better off paying your bills through escrow and avoiding extra credit card charges.
If you can handle your finances and bills responsibly, skipping out on escrow may be a path to tens or hundreds of thousands of bonus miles from new credit cards. Make sure to follow the rules, understand the costs, and keep track of all of your due dates to get the best results.