Pay Student Loans Credit Card
If you’re a student loan borrower, you’ve probably heard the statistics: The average college graduate owes $30,000 in student loans upon graduation. And if you’re reading this article, it’s likely that you are one of those graduates. But there is hope for the future and for your finances! One way to get started on that journey is by using a credit card to pay off debt.
Can I use a credit card to pay off my student loans?
Yes, you can use a credit card to pay off your student loans. All major credit cards offer some form of cash back or rewards program. This means that you are earning points toward free money just by using the card, which is essentially getting paid to make purchases on the card. These points can then be used toward paying off student loans in full or as part of a payment plan.
However, not all credit cards will allow this type of transaction: it depends on how much money you need to pay on what kind of account you have (mortgage vs car loan vs student loans). Some banks will charge fees for processing payments made through their cards and others won’t allow it at all. It’s best to call up the issuing bank before attempting this method if possible so that there aren’t any surprises down the road when trying to apply for additional credit lines or other services from them later on down the road!
Using a credit card to pay off student loan debt – how and why it works
Picking a credit card to pay off student loans
A major benefit of using your credit card to pay off student loan debt is that you can earn rewards while doing so. You may be able to get 1% cash back on all purchases or up to 2% cash back when you use your card at specific places, like gas stations or grocery stores. You’ll also receive perks such as travel discounts and rental car insurance if you’re a frequent traveler.
The downside is that interest rates are typically higher than those attached to other types of consumer loans; the average APR for student loans was about 13% in 2017 according to LendingTree data (according to Student Loan Hero). However, many cards will offer promotions with 0% introductory APRs which could allow you more time than if you simply paid off the balance in full every month—and they might even waive annual fees while they’re at it!
Will using a credit card to pay off my student loans affect my credit score?
If you’re thinking of using a credit card to pay off your student debt, chances are that you’re concerned about the impact on your credit score. After all, if you max out a credit card with the help of student loan refinancing or consolidation and don’t make any payments for several months, it can be hard to pay off that balance when it’s due. And then there’s the possibility of getting into trouble with late payments or even defaulting on your loans as a result. So let’s take a look at how this affects your score and what you can do about it:
- Credit card payments are reported to the credit bureaus: Whenever you use a credit card (or any other type of debt), that information is recorded by each bureau—a process called “transcripting.” Your payment history will show up on both TransUnion and Equifax reports every month so long as those accounts are open and active in good standing.
- Credit card payments generally report positively: Generally speaking, paying off more than just minimum monthly charges will result in positive marks being added to your record—as long as those charges aren’t too high relative to historical usage patterns for specific accounts (such as maxed-out cards). That said, there are some exceptions where unpaid balances would negatively impact someone else’s score even though they didn’t personally incur them (see number 2 below).
How much will it cost me to use a credit card to pay off my student loans?
There are three main costs associated with using a credit card to pay off your student loans:
- Fees. The most obvious cost is the fee you pay for using your credit card. If you use a rewards card, this might not be too high; but if you just have a standard no-frills card, it could be as much as 3% of the amount paid each month (or even more).
- Annual fee. Most rewards cards charge an annual fee after the first year—typically $49–95—and some also require an additional processing fee of around $3–5 per payment made on the card’s website or mobile app. That said, these fees don’t outweigh the benefits of paying interest on student loans with most rewards cards because they offer so many other perks that can save you money over time by reducing how much interest accrues in general and helping with things like travel expenses and dining out at restaurants.* Interest rate: The interest rate on your student loan will still apply if it was taken out before July 1st 2009; however, any new federal Direct PLUS loans issued after that date will carry an 8% fixed rate rather than variable rates based off prime plus 1%.
Are there any other drawbacks?
There are a few drawbacks to consider before you make the switch.
- You will be charged interest on your credit card balance, which can add up if you don’t pay off the balance in full each month. You might also be charged interest on your student loan debt if you don’t pay it off in full each month, so doing so twice could get expensive quickly.
- If you plan to use this card long-term, make sure that the fees won’t outpace its benefits as they may do with other rewards cards (and certainly will with no rewards).
While there are some risks, using a credit card can help you save money on interest payments, earn rewards, and may help your credit score.
While there are some risks, using a credit card can help you save money on interest payments, earn rewards and may help your credit score.
While this is true in some cases, paying off student loans with your credit card may not be the best strategy for you.
Here’s what you need to know about using a credit card to pay off student loans:
- Credit cards have high interest rates that can make your balances grow rapidly. If you’re carrying high-interest debt from other sources such as a balance transfer or payday loan (which typically has about 400% APR), paying off those debts should be your priority before you start adding more interest onto them by making purchases on your credit card instead of paying down the principal balance each month.
If you’re trying to pay off student loan debt, using a credit card can be a great way to save money on interest payments and earn rewards. But it’s important to be aware of the risks, including the fact that if you go over your limit or miss payments, your credit score could take a hit.