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Can You Pay For Student Loans With A Credit Card?
Student loan debt is a serious issue for many of us. Americans are carrying a huge amount of student loan debt with approximately 65 percent of recent graduates carrying some sort of student loan debt, and each graduate leaving school with an average debt of $29,200.
It is no surprise that students and new graduates are often concerned about how they’ll pay down that debt. One option people often wonder about is whether or not you can pay for student loans with a credit card.
Most companies that service the bulk of student loan debt, like Great Lakes Educational Loan Services, Navient, and Nelnet do not accept credit card payments.
Despite these challenges, it is still technically possible to pay student loan debt with a credit card. However, it can be expensive, and it may not be your best bet.
Let’s take a quick look at how to pay student loans with a credit card.
Can You Pay Your Student Loans With a Credit Card?
There are a variety of ways you can pay your student loans with a credit card:
One of the simplest and most straightforward ways to pay your student loans with a credit card is by taking cash advances against the card. You can go to an ATM or a bank and take a cash advance off of the card, much like you would with a standard debit card.
Then, you can deposit the cash in your checking account or purchase a money order and use it to make your monthly student loan payment. In some cases, you may also be able to go directly to your lender and make a cash payment as well.
Your credit card company will likely charge you a fee for the cash advance, and you incur an increased monthly interest expense on your growing credit card balance.
However, if you feel you can manage your credit card debt more effectively right now than using cash, this could be a good, albeit temporary choice for you.
One of the most expedient ways to pay off your student loan debt with a credit card is to use a balance transfer. Credit card companies often offer cards with low introductory rates that you can use to transfer existing debts to.
The repayment terms on the credit card are usually more flexible than what you’d face with a continued monthly student loan payment, which could be a good fit for your current financial situation.
You may also be able to benefit from the card’s rewards program by executing a large student loan transfer, too. You could put the points you rack up on that transfer to good use in many different ways – including paying down your debt.
However, there are drawbacks to using balance transfer cards for student loan debt. While the card’s introductory rate may be low initially, most credit card companies raise rates over time. This could lead you to incur significant monthly interest expenses on the debt, which could be difficult to pay down.
Additionally, most of these cards charge some sort of balance transfer fee as well, which can range from one to five percent of the overall student debt you transfer.
How To Pay Your Student Loan With A Credit Card – Third-Party Services
Another way you can use your credit card to pay student loans is by using a third-party bill-paying service. One of the best examples of these services is Plastiq.
If you establish a Plastiq account, you can link it to one or more of your credit cards. Then, you can use Plastiq to pay your student loan debt, which it does through an ACH transfer or some other form of acceptable payment.
Using third-party services can be costly, however. Plastiq typically charges a 2.5 percent fee on transactions using your credit card; so, if you use Plastiq to make a $500 monthly student loan payment, you will be charged $12.50.
You may be able to offset this cost somewhat by leveraging your credit card’s rewards points. Additionally, Plastiq allows you to earn “Fee-Free Dollars” through promotions and other means that can be used to pay transactions without incurring a fee.
However, if you are going to use a third-party system to pay your student loan with a credit card, expect to pay more.
Things to Consider Before Using Credit Cards for Student Loan Debt
Before you use a credit card to pay student loans, make sure you think carefully. If you use a credit card to pay another debt, you’re just transferring that debt from one lending platform to another; you’ll have to deal with it sooner or later.
While your monthly credit card bill may be easier to manage than a student loan payment right now, the balance on your card could balloon to an unmanageable amount over a relatively short period of time, too.
So, if you’re preparing to whip out the credit card for a student loan payment, make sure there are no better options out there for you.
Additionally, due to the coronavirus pandemic, you may be eligible for student loan relief right now that could allow you to hold off on using your credit card for loan payments.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act put all student loan repayments into forbearance, or suspension, until September 30, 2020.
This means you do not have to make a student loan payment until September 30th, although you still can if you want to.
So, instead of making any student loan payments with your credit card, you could halt your payments now, use this time to improve your financial situation, then resume making cash payments on your student loan balance during the fall.
Innovative Alternatives to Credit Cards and Cash for Student Loan Payments
If you don’t have cash on hand, there are still tons of ways to pay your student loan other than using a credit card. Feel free to explore the benefits of not using cash payments for student loans and avoiding the various shortfalls that come with using your credit card for student loan payment.
Here are several unique and innovative ways to avoid falling behind on your loan:
Federal student loan issuers love this substitute. The option offers you the chance to pay up your loans on a long-term basis. Using the income-driven repayment plan, your loan bills are limited from a least 10% to 20% at most of your discretionary income as a student.
The option also waives any reminder loan that is left unpayable after 20 years of the loan. Most private loan issuers decline to offer loans using the income-driven repayment method.
Seek clarity from your lender on the opportunities available when using the income-driven repayment to limit the interest rate or even pay interest over a period of time while using this option to pay your student loan.
Also known as forbearance; the option of deferment is available to private and federal student loaners. The forbearance method comes with a unique option of seizing payments temporarily while paying up a student’s loan.
The good news is, if you get a job while studying and an unforeseen event occurs that pulls you to a point of financial hardship, you can apply for the deferment option to take a break from the payment of your student loan until you’re back on your feet again.
Nonetheless, the benefits of deferment apply to the source of your loan. For federal loans, you get an option depending on the circumstances of your loan. If your loans are subsidized, the federal government covers the interest payable during deferment.
For private loans, only forbearance and not deferments are granted to student loan recipients. This option is also offered in tranches in shorter increments than the option offered by the federal government.
You should note that interest would always be present for private loaners and isn’t waived.
Refinancing is mostly offered to students with excellent credit ratings. A good credit score can take your interest rate to an all-time low using the refinancing option.
Unlike the credit card, the refinancing option doesn’t let your interest increase when your repayment term is extended. Tons of borrowers see this option as a significant way to save costs while paying up a student loan.
The option allows you to secure lower rates, thereby encouraging savings amongst students and other borrowers. You should note that if you’re a federal loaner, using refinancing would convert your loan to a private loan.
This invariably means that student loan refinancers would not be eligible for the income-driven repayment and deferment options generally.
Consolidation is similar to refinancing for federal student loan recipients. If you have a federal student loan, your multiple loans accumulated over time can be consolidated and replaced with a single loan for convenience.
However, the consolidation doesn’t offer you a low or reduced interest payable. What’s in it for you is an extended payment term, which offers you minute monthly payments, making you eligible for access to federal loan benefits.
Consolidation is required if you intend to access income-driven repayment when you’ve got multiple student loans to contend with.
Related: Curadebt Debt Consolidation
When is it Good to Use your Credit Card for Student Loan Payments?
Despite paying student loans with your credit card not being a good idea generally, there are a few options where paying a student’s loan with your credit card would be of benefit to you, these are:
A balance transfer card with a 0% introductory APR is an excellent option to pay up student loans using a credit card. Usually, students loan interest rates are low, but there’s nothing greater than a 0% interest rate to beat the odds.
Transferring your student loan to these 0% interest credit cards would avoid you accruing interest on the balance from the first six months up to twenty-one months, subject to the terms and conditions on the card.
However, be sure to be very careful not to transfer your student loan if you cannot pay up the loan before the introductory APR expires, this could lead you to pay large interests on the loan.
Also, make sure to find out if your credit card offers free balance transfer fees during the first months of the trial. Most credit cards allow you to transfer balances without charging fees at the introductory APR while others charge fees, which could eat deep into your loan savings.
Again, if your student loan is large when compared to the transfer fee payable, you could take the chances and place your loan on the credit card; if it’s the other way around, it’s not advisable to do so.
Using reward credit cards to pay your student loan is a fab idea. You earn large profits, and cash backs. Nonetheless, if you are required to pay fees when transferring student loans to your credit cards, you just might pay more fees than the rewards you get.
Always try using cashback rewards when paying your student loan, thus reducing the fees payable on your student loan. Try also to get a direct deposit on cashback rewards to your bank account directly.
Having rewards in your bank allows you to pay up your student loan using your credit card with low-interest rates and fees.
Here are some tips when dealing with credit card debt.
Parting Thoughts: Can You Pay for Student Loans With A Credit Card?
You can use your credit card to pay your student loan debt. Any of the means discussed above are effective ways to put your credit card to work paying student loans. However, before you choose to do so, make sure using credit cards to deal with student loan debts is the best choice for you.
Using credit cards can be costly, and there are inherent risks to incurring large credit card balances that carry over from month to month. There are also many other options out there for dealing with student loan debt, including coronavirus-related forbearance.
So, weigh all your options for dealing with your student loan debt, and make the choice that works best for you.
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