Credit cards provide incentives for big purchases, but can they also help pay student loan balances? While it is possible, but risky and can often prove expensive.
Federal student loan servicers don’t usually accept credit card payments and third-party payment facilitators like Plastiq charge fees to process these transactions. Furthermore, you will lose borrower protections by shifting debt onto credit cards.
1. Direct Payment
If your loan provider accepts direct credit card payments as one way of repaying student loans, that could be one of the easiest and fastest ways to do it – though it comes with some risks; NerdWallet suggests keeping in mind some key factors when considering this strategy.
Private loan servicers usually allow their borrowers to make their student loan payments with credit cards, unlike federal student loans which only accept payments via direct deposit or through special repayment plans negotiated between you and your lender. But be wary: doing this may compromise certain federal protections as well as increase in interest payments over time compared to paying off loans through these methods.
Some students seek to avoid this issue by paying their student loans with credit cards via an intermediary such as Plastiq bill payer service. Such services may charge an administration fee for each payment – often either flat rate or percentage of total amount paid; additionally, balance transfer cards with zero APR offers often have limits on how much can be transferred per transfer and incur fees for every transfer transaction.
Once any 0% APR offer expires, its standard APR applies to your entire transferred balance. While this approach could save some interest charges, you should use it only with careful thought and enough cash available to make payments after its duration has ended.
Consider that although credit cards may enable you to pay your student loans, most reward cards are only open to people with good or excellent credit and offer various perks such as cash back or points towards purchases and airline miles.
Keep in mind that although some student loan servicers have inadvertently accepted credit card payments in the past, this should not become standard practice. According to research from the Consumer Financial Protection Bureau, some loan servicers have reversed payments made with credit cards leading to additional unplanned debt for borrowers. Before trying to use credit cards as payment option on student loans it would be wise to consult a trusted nonprofit financial counselor first.
2. Balance Transfer
Though paying your student loan debt with plastic may seem appealing, doing so could prove costly and even put your credit at risk. Before opting to use plastic to settle student loan debt payments, carefully weigh all available alternatives before committing yourself.
Credit cards may not technically be illegal to use when paying student loans; however, federal regulations prohibit federal student loan servicers from accepting credit card payments for these loans. Private loan servicers may allow payments with a credit card; additionally, third-party bill payment services — like Plastiq — offer this service and will accept these payments and send checks out directly on your behalf for a small fee.
Some credit cards offer promotional rates of 0% APR lasting 12-18 months, making this an effective means of paying off student loan balances without incurring interest charges. Though this option can be useful, keep in mind that promotional periods have an end date and you will eventually need to settle all the balance on your card.
Balance transfers can also help you pay off student loans with credit cards. This involves moving the balance from its current servicer onto a different credit card provider such as Plastiq (typically charging 2.9% of transaction amount as their fee) or through your card issuer with their own balance transfer check issued upon approval of balance transfer request.
There are also credit cards that offer 0% APR on balance transfers, such as the Chase Slate Edge card and Amex Blue Cash Everyday card from Amex. Be aware that balance transfers usually incur fees of 5% of transaction amount; when using them with student loans they lose certain protections such as income-based repayment or deferral.
3. Convenience Check
If you’re drowning in debt, paying student loans with credit card may seem like the ideal solution. After all, credit cards typically offer zero percent introductory APR offers that last between 12-18 months – tempting though it may seem. Yet transferring your balance onto a credit card could cost even more in the long run since credit card interest rates tend to be significantly higher than student loan interest rates.
Even if your financial circumstances qualify for deferment or forbearance on federal student loans, using credit cards for payment could increase late fees and charges that make paying off balance before the 0% intro APR offer ends more challenging. Furthermore, you will lose some borrower protections associated with federal student loans such as income-based repayment plans and deferment options.
There are workarounds, however. Third-party payment services like Plastiq allow you to use a credit card when mailing payments directly to student loan servicers – though these typically charge fees.
Another option for repaying student loan balances may be transferring them directly onto a new credit card that allows payments directly to your lender. Although certain student loan servicers accept such payments directly, it’s wise to confirm with them before attempting this method of repayment.
Not recommended is using your credit card cash advance fees (which typically range between 25%-27%) to make student loan payments, since these costs will often outstrip student loan interest rates and could prevent you from earning rewards through spending.
4. Cash Advance
Credit cards make paying student loan debt difficult, with risks and costs that include no rewards and the loss of key protections such as income-driven repayment and deferral options. Therefore, paying with a credit card often doesn’t make financial sense.
Plastiq offers online third-party payment services like Plastiq that enable students to easily pay their student loans. Once charged to your credit card, these services usually charge 2.9% of transaction amount as their fee; they also offer promo codes to reduce this charge. You could also use a balance transfer credit card; however these cards come with higher interest rates and fees than standard cards.
If you decide to pay your student loans with a credit card, make sure that payments post as purchases rather than cash advances. Cash advances are treated differently by credit card companies and start accruing interest immediately compared with purchases, rather than after an agreed grace period has passed. Furthermore, their interest rate is often much higher and fees often outweigh any potential value gained through earned rewards programs.
Paying student loans with credit cards is usually not recommended; the only exception would be an 0% APR balance transfer card that offers great value. Even then, this method should only be utilized if it can significantly reduce total debt payment costs.
if you find yourself having difficulty affording student loan payments, the first step should be taking an in-depth look at your budget. Evaluate your spending habits and consider cutting back on discretionary items such as eating out or streaming subscriptions to free up money for student loan payments. Also consider refinancing or using an income-driven repayment plan to cut interest charges; and finally if all else fails a personal loan may provide relief since these often feature lower interest rates than credit cards as well as flexible repayment terms.