If you’ve taken out student loans throughout your educational career, you know all too well the feeling of dread that accompanies repaying them. Some students wonder if it’s worth it to reduce their student loan debt by making their monthly payments with credit cards—after all, some credit cards offer incentives that allow borrowers to accrue rewards over time. They also come in handy when you’re otherwise unable to make some of your regular payments on time.
Is it possible to pay your student loans using your credit cards? In some cases, yes. Is it advisable? The answer to that can get a little more complicated.
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Paying Student Loans With a Credit Card
On face value, most federal student loan services do not have an option to pay with a credit card payment. Most only accept payments directly from checking and savings accounts, due to U.S. Department of the Treasury regulations.
There are ways around this, however. You may employ the services of a private student loan borrower, who you pay each month with your credit card. They will then send a payment on your behalf.
Keep in mind that even if you’re using a credit card to cash in on the rewards, you have to be able to pay off your credit card debt before interest accrues — otherwise there are no benefits to paying student loans with credit cards.
Why You Shouldn’t Pay Student Loans With a Credit Card
Even when paying student loans with credit cards is an option, it’s highly inadvisable due to the typically high interest rates that most credit cards have. Student loans also accrue interest, so in essence, it’s like you’re paying interest twice–that of your credit card and that of your student loan.
“When you make a student loan payment you are repaying both the principal amount and interest,” note the experts at Experian. “If you pay student loan debt with a credit card, you’re going to pay interest on the credit card balance each month too.”
The only way to avoid that debt is to pay the balance in full each month. If you find yourself unable to do that, you’ll only be hurting yourself in the long run. If you’re unable to pay the balance in full each month, be sure to at least make the minimum payment. If you are unable to make your payments, you might trigger a penalty APR which can be as high as 29.99 percent.
Beyond your interest rate, paying for your student loans using your credit cards can adversely affect your credit.
If you move your student loan balance to your credit card, only in pieces, it’s likely that your credit score is going to take a hit. It’s recommended that your credit usage remain below 30 percent of your issued credit limit in total. Those who have a very high credit allotment will have extra wiggle room, but for those who have the average of $8,000-$9000 in credit, you can only use $3,000 on student loans without potentially damaging your credit score.
Other Options for Repaying Student Loans
Overall, there are a lot of risks involved with paying student loans with a credit card. While it may be possible to earn rewards, or avoid being penalized for a late payment, there are a number of options available that will more than likely serve you better in the long run. For more complete information, it’s best that you contact your lender to determine the options that are right for you. But with federal student loans especially, there are a number of repayment options available.
Adjusting Monthly Payments
Federal student loan providers often offer income-driven repayment plans which allow students to more easily make their student loan payments without breaking the bank. In essence, these plans set your monthly student loan payment at an amount that is affordable based on the previous year’s income and your family size.
The amount you’ll pay each month is based on a percentage of your discretionary income. Depending on the income-based repayment plan that you choose, you’ll likely pay between 10-15 percent of your discretionary income.
“Most federal student loans are eligible for at least one income driven repayment plan. If your income is low enough, your payment could be as low as $0 per month,” according to the U.S. Department of Education.
Student Loan Refinancing
When it comes to student loan, students generally have two options. They can either choose to pursue direct consolidation through the federal government, or refinance their loans with a private lender.
If you choose to pursue student loan consolidation, your interest rates do not decrease. Rather, interest rates are averaged and rounded up to the nearest ?%. When you refinance your student loans, you receive a new interest rate that is lower than the interest rates on your current loans.
This is ideal for those who have a strong credit profile and reliable income, as you could potentially save thousands of dollars on a new interest rate.
Deferment or Forbearance
Requesting a deferment or forbearance is an attractive option for many students who have fallen behind or are worried about being able to make their payments for an extended period of time. If approved by your lender, deferment and forbearance allows you to temporarily cease or reduce the amount of money you have to pay back to your loan provider.
These can be especially good options for those who have experienced unemployment, military deployment, or other economic hardships and are looking to suspend their student loan payments for an extended period of time.
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