Can you pay loans with a credit card? Which option is better for students: paying with credit card or using cash back earnings? Student loan borrowers all feel the pinch of the monthly payments sooner or later. In the modern world, many people prefer paying using their debit or credit cards. It is much more comfortable and faster than visiting a physical bank and paying in cash. However, many young people do not see the pitfalls of paying their debts with credit cards. They are great for shopping and some other stuff, but this way of payment has certain risks you should be aware of if you need to cover your student loan.
Below, we explain the pros and cons of using credit cards to pay down student loans.
Can You Pay Student Loans with a Credit Card? Disadvantages and Risks
“Can you pay student loans with credit card?” It is quite a disturbing question of many young people who attend paid educational institutions or special education programs.First of all, the majority of payment services do not have this option at all. The most popular services like Mohela and Nelnet insists on paying through checking or savings accounts. Some students share that you can use a credit card at Great Lakes, but it works only for a single-time payment and paying over the phone. Thus, you can only count on the private student loan borrowers who allow using credit cards. However, you should be ready to pay high fees.
Risks of Paying Student Loans with Credit Card
Most experts try to persuade young people that it is not a good idea to cover their educational debts with the help of credit cards. Many students miss the extra fees that may be tacked on. So, below, we list the main reasons not to pay loans with credit card.
- The interest rates of credit cards are much higher than you can suspect. For instance, federal student loan interest rates fall between 4-7% while credit card interest rates achieve 15%! So, you can imagine how much money you risk losing. You are simply wasting them.
- Initial 0% APR is not available for a restricted The credit card interest rate may achieve the amount twice higher than a student loan interest rate.
- Having a balance on the credit card and covering interest is the same that paying interest on interest.
- The credit utilization ratio is 30% of your FICO credit score. It is the general number of money you owe to the credit amount you can use. In most cases, it is not recommended to use more than 30% of the available credit money as you risk falling into the red flag zone meaning inability to take any more loans.
After you pay off the share of the loan using a credit card, the process cannot be stopped or reversed. Now you know the answer to the question, “Can you use a credit card to pay student loans?” It is up to you, but you should be really careful if you choose to do so.
3 Ways to Use Credit Card Rewards to Cover Student Debts
We mentioned that there are some points loans. You get extra points/rewards while using credit cards regularly or having a highly positive balance on them. Why don’t you use them to cover the student loans?
Redeem credit card points toward student loan payments. In these terms, one of the best credit card for student loans is ThankYou Premier card. It allows making student loan payments. Once you register, you obtain the introductory bonus points after agreeing on the spending condition.
- Find the right type of card to cover your debts. One of the examples is the Upromise MasterCard.
- Local support will explain how to pay student loans with credit card and guide you step-by-step. The best thing is that their cards have no annual fees.
- Register for specialty rewards programs. Such programs make it possible to earn cash back while buying goods and services online. Simply connect the student loan account and the chosen program to transfer the rewards to your loan account monthly.
Some Reasons to Pay Student Loans with Credit Card
Okay, that is when you may ask, “Can I pay student loans with credit card and benefit from doing so?”. There are always two sides of the coin, but the list of advantages is too short. The primary question is, “Can you pay student loans with a credit card for points?” The main reason why some young people may want to cover their student loans with their credit cards is the opportunity to gain special rewards. If you do not spend more than 30% of the credit limit (for instance, if it is $10,000, as it usually happens, you should keep your balance below $3,000), you have a chance to get those rewards. However, mind that even if you behave accurately and keep the balance, you cannot overcome extra fees. In most cases, these charges outweigh the value of any rewards obtained. Another reason to use a credit card as a measure to pay back student loans is when you can prevent interest by paying off your balance entirely every month.
“Can I pay my student loans with a credit card safely?” It is safe from all aspects, excluding the final interest rate you will have to pay. It may change based on inflation and some other factors you should not ignore. Thus, a student should not be blind and weigh all of the pros and cons carefully. Take into account the ramifications on your wallet and credit score. Make sure your credit score does not suffer as you will not be able to make payments online. In other words, you may then forget about shopping or mortgage.
The Final Decision Is Always Up to You
If you decide to pay down your cash back loans with credit cards, analyze the market to detect the services with the best conditions and rewards not to lose more than you expect!