Did you know that two in three college students graduate with a student loan debt? People are facing these loans daily, but even if you are a responsible borrower, an unexpected event might cause financial difficulties. What are the possibilities to deal with your loan in hard times? Can you pay the student loan with your credit card?
The answer is that you can not do it directly, as the credit card is not usually accepted by student loan services. However, there is a possibility to use a third-party payment service or a credit line. You should consider that these methods are high-priced and risky.
If you have lost your job or unexpected expenses occurred which impacted your ability to pay for your student loan bill, the best option is to try to postpone or minimize the payments. If this option is not for you, you will find in this article the advantages and disadvantages of the credit card, we will offer you some tips in case you have chosen this method and some other possibilities to deal with a lack of funds.
Why Paying With a Credit Card Might Not Be a Good Idea
As mentioned before, the companies won’t let you use a credit card to pay your student loans, therefore you will need an intermediate. The main disadvantage of these options is the high-interest rate and the transaction fee of the provider. Furthermore, choosing to move your loans to credit cards means to lose certain protections, such as the consolidation, deferment, forbearance, or loan forgiveness options. Last but not least, do not forget about your credit score, which may drop significantly. Now that you are aware of the disadvantages, these are your options:
Use a third-party provider
Intermediates, such as Plastiq could help you to pay the loans with a credit card. You only have to know that there will be additional costs added to your bill due to the transaction fee. The trick is that you do not cover your loan, you will just add some additional fees to your monthly costs, so this option should be your last one.
Pay off a student loan balance with a credit card
Some student loan borrowers opt for this option for the rewards. Some lenders accept this payment method, however, you have to provide a credit limit able to host the student loan balance. Be aware that the balance transfer fee can damage your savings.
Use a Cash Advance
Consult your credit card issuer about the possibility to receive a cash advance to pay your student loan. This option has to be chosen only in emergencies as cash advances come in with very high-interest rates, up to 20%, which will make your debt even more difficult to handle.
You can choose Convenience Checks
As stated before, your student loan servicer might not let you pay directly with your card. Not each credit card issuer offers student loan balance transfer. Only certain issuers, for example, Bank of America, will allow you to do this under certain conditions. However, a convenience check might be requested from credit card issuers. These can be treated as cash advances, but have the principles of a bank check.
Potential benefits of paying with a credit card
Now that you are aware of the potential risks, we can move forward and talk about the advantages of credit card payments. Here are the main benefits to consider:
Earn Rewards with your Credit Card
If you have a credit card that earns rewards, from each payment you will get your cash back. We would advise you to consider this option only after a detailed calculation of the benefits besides all the interest rates. If the fee exceeds the credit card rewards, you might get in minus rather than earn something. But, it would be a great idea to use the cashback of your outgoings to cover your student loan balance.
Secure zero percent APR for a limited time
This option is not suitable to pay off your student loan when you are experiencing a financial shortage. However, in some cases, this apr offers can save you money. If you manage to get a credit card with an introductory zero percent APR will help you to save by not paying student loan interest rate for a limited time. If you choose a balance transfer to your 0% card, you should consider the processing fees and ensure the total repayment by the end of the period.
Save time before your payment deadline
Use your credit card only as of the last option and only if you need to save some time until the next repayment. Otherwise, if you have other possibilities, analyze the option which saves you more money.
Factors to Consider When Using a Credit Card to Pay for Student Loans
Make your student loan payment every month. It is important to make sure that you keep the repayment plan and pay the minimum in time. If you will miss or delay it, you might get a penalty APR and lose your cash back rewards. This can also lead to the loss of the 0% introductory rate. The responsible reimbursement should be your priority.
Don’t exceed your credit limit with student loan balance transfers. Try not to exceed the recommended credit limit, as this will impact your credit score. Notice that you will be able to transfer only the balance you qualify for.
Get preapproved before applying. This is a simple way to find out if you will be able to pay your student loan with a credit card and the credit limit you can be approved for. This is especially needed for balance transfers, as you will be able to company many offers and choose the most suitable for your needs.
Avoid annual fees. Make sure to choose a credit card with the lowest annual fees, as this ensures that you will not lose your savings for paying these fees.
Choose a credit card with the lowest APR possible. If you plan an earlier full repayment, this option will save you in case of an unexpected tough situation.
Other Ways to Get Help With Student Loan Payments
This option is probably the best one for a federal student loan debtor. Paying student loans with this plan means to limit the bills to 10-20% of your income after taxes and expenses. If you are worried about the long repayment of your student loan debt, with an income-driven plan your left balance after 20-25 years will be forgiven. Take into consideration that credit card companies usually don’t support this type of repayment.
Deferment or forbearance
This option is available for both federal student loans and private ones. If you are in a situation as a job loss, it will allow you to pause your student loan payments for a short period.
This option is for students with a good credit history. It allows you to apply for refinancing student loans at a lower interest rate. Consider that this will turn your debt into private loans which means that you will lose the two options mentioned above.
If you are trying to extend the payment period to minimize the monthly bills, consolidation will help you to turn multiple loans into a single one. The interest rate will not be lower, but it may be easier for you to handle these amounts. Furthermore, this option keeps the federal loan benefits available.
Paying your student loans with a credit card is not the best choice due to the high credit card interest rates and fees for a balance transfer. A better way to deal with financial struggles would be to use the cashback from your expenses as a helping hand to cover your bill.
We recommend to be informed and consider all the aspects before taking a decision. It might happen that in a tough situation, you will give up on low-interest options and choose higher rates instead. If you experience problems paying student loans, search for options which will be profitable for you from a long term perspective.