Paying student loans with credit card can make sense in certain instances, provided you can earn enough rewards to offset payment fees and balance transfer fees. Furthermore, any balance transfer payments should not be considered cash advances.
Here’s how: 1. Integrate an external payment service provider.
1. Use a third-party payment service
Though it is technically possible to pay off student loans with credit cards, this strategy should be done carefully as it may incur substantial interest charges and additional debt burden. Plus, earning rewards on your card might provide better financial returns in terms of airline miles or cash back than using it to reduce student loan balances.
If you use a third-party payment service like Plastiq or Stripe to pay student loan bills, they will charge your card before sending the money directly to the loan issuer. Each transaction fee may differ; typically it ranges between a flat rate or percentage of total amount due.
In certain instances, services offer direct credit card payment through a convenience check that’s mailed directly to the student loan issuer. This method avoids service fees; however it should be noted that cash advances incur immediate interest charges; furthermore you won’t earn rewards with such transactions.
Remember, too, that credit card payments may cause your utilization ratio to skyrocket if more than 30% of available credit is being utilized on one card.
If you’re still determined to pay off your student loans using credit cards, consider opening a 0% balance transfer card. These cards offer no interest on balance transfers for up to 21 months and could save a great deal in interest fees. Just make sure that your balance can be paid off before its introductory period expires; otherwise you could end up back at higher interest rates!
2. Take out a cash advance
Paying student loans with credit cards may be possible, but it can also be very costly. Credit cards reward large purchases and are more suitable for people who spend frequently and in larger amounts than smaller loans.
Credit cards typically make sense only in specific instances when used to make student loan payments, such as taking out a cash advance on your card and using that money towards paying off student loan balances.
Cash advances on your credit card can be taken out via an ATM or by calling your issuer and asking for it to be transferred over the phone. With these funds in hand, student loan debt will be eliminated while leaving an outstanding balance that accrues interest at its regular APR rate.
Applying this strategy to paying off student loans usually only makes sense for those with significant balances and access to a credit card with a sufficient rewards rate to cover transaction fees and interest charges that will accrue. Furthermore, ensure your student loan servicer accepts credit card payments without rejecting them due to being too large a transaction.
The US Treasury and most private student loan lenders do not permit direct credit card payments of student loans; you must instead use either an ACH direct deposit from your bank account or mail-in checks sent directly to their servicer or lender. Some borrowers find ways around this rule, including third-party services like Plastiq or taking out cash advances; but both these approaches can be expensive; to reduce costs you might consider moving your balance onto a credit card with an introductory 0% APR offer but be wary about any associated expenses that might accrue with that approach;
3. Transfer your balance to a 0% APR credit card
Credit card issuers offer balance transfer offers with zero percent APR periods, providing an ideal way to pay down high-interest debt without paying its full amount immediately. Student loan debt, however, typically does not qualify as balance transfers; even if transferred onto one with such terms, an associated transfer fee could still be significant.
Keep in mind that while student loan interest is tax deductible, credit card interest isn’t. So if you pay off your student loans with credit cards instead, this means forgoing that tax break – plus, late penalties could make their presence known far sooner than with student loans!
Though credit cards might appear like the obvious solution for paying off student loan debt, there are better strategies available to you. For instance, if you find yourself late with payments you could apply for deferment or forbearance with federal lenders (this can provide breathing room while keeping interest from accruing); with private loans you could also explore income-based repayment plans to ensure payments that fit within your budget.
Refinancing student loans may provide another solution. But this doesn’t work for every situation and requires you to have enough equity in your home to qualify for refinancing.
At its core, student loan repayment should be about finding a plan that suits both your budget and goals. When looking at short-term consolidation or refinancing options to pay off student loans balances, do your research first so you find one that makes financial sense for you – this way reputable loan providers can ensure great rates with no surprise fees down the road.
4. Use a convenience check
Though using credit card rewards like airline miles or cash back may seem appealing, their costs often outweigh any advantages. Third-party processing companies charge fees to process payments; these fees can often outweigh any rewards earned; using your card for loan payments counts as cash advance which typically incurs higher interest rates and doesn’t get grace periods like regular purchases do, potentially leading to interest-rate reversals and other costly charges as well as negatively affecting your credit score.
One method people try to use their credit cards for student loan repayment is by taking advantage of convenience checks issued by card issuers at random times throughout their cards’ lifespans. Doing this increases interest charges even further since any amount paid with such checks counts as cash advance rather than purchase; additionally, such amounts could push over your card’s credit limit, leading to additional fees and even penalty APR charges imposed by your issuer.
One practical, yet still risky, solution involves moving loan balances onto a credit card offering 0% APR balance transfers. While this may reduce any bonuses you receive for this move, it may also prevent you from taking advantage of other student loan repayment options like income-driven repayment plans, deferment or forbearance.
Not to forget is the fact that transferring loan balances to a new credit card removes them from their original servicer, meaning you will no longer have access to federal protections and borrower assistance services that many borrowers consider more essential than earning credit card rewards.
Though it may be tempting to find innovative ways of using credit cards to repay student loans, it’s best to use your loan servicer’s online portal instead. By making regular payments as directed, you’ll save yourself extra interest charges while protecting your credit score.
