The 1 Time to Pay Someone With Credit on Paypal

Have I told you that I love credit cards?  I know I talked about my favorite cards.  This post discusses a simple but important issue: does it ever make sense to send Paypal payments using a credit card.  By the way, the short answer is no except for one very important caveat.  The following equation will apply so long as you pay your credit card at the end of every month.  If you carry a balance, the answer is always no.
Today, I received a great question: does it make sense to pay first and last month’s rent ($2200) on a credit card if Paypal charges $64 to make the transaction?  Paypal charges 2.9% + $0.30 when paying another person.

The question really is: are the benefits of 2200 Southwest Rapid Rewards points more valuable than $64?  The Points Guys values Southwest points at $0.015 per point.  This is consistent with what I find on the Southwest web site.  All you need to do is find the flight you want and write down that cost.  Then change the view on the Southwest site to view prices in points.  Find the same flight and write down the cost in points.  Divide the cost in dollars by the cost in points.  That number is how many dollars each point is worth.  You’d have to do this for every flight they offer and average them to get the big picture on how much the points are worth.   What really matters are the flights you want, so it doesn’t really make much sense to repeat this calculation over and over.

Only buy if the value of the points is greater than the cost of the transaction.

In this case, $2,200 is worth 2,200 points (0f course, unless it’s spent on Southwest or Rapid Reward partners), which is worth 2,200 * $0.015 = $33.  This is less than the cost of completing the transaction, so it doesn’t make sense to do it.

The one caveat here is due to the fact that I’m referring to the Southwest credit card which offers the Companion Pass as a reward to those who earn enough points in a calendar year.  You need to earn 110,000 points in a calendar year.  If there is a chance that you can accomplish that, it’s worth making transactions that lose you money in the short run.

Credit Card Points vs Paypal Fees

It’s not likely you’re going to earn more than 2.9% from credit card points alone, so the only time it makes sense to use your credit card on Paypal is if you are going to get a valuable travel status.  The value of the Companion Pass strongly depends on how often you travel.  If you take 3 trips in a year and each flight is worth $300, the value of the Companion Pass for that calendar year is $900.  If you have the Companion Pass for longer than a year or travel more than 3 times a year then it’s worth even more.  You get the point.  This is by far the best deal on travel out there today!