A lot of student debtors wonder whether or not they can pay their student loans with a credit card. We have all been in a situation where we aren’t sure if there is going to be enough money to make ends meet each month. That is when it may be tempting to make some of your monthly payments with a credit card, so you can worry about it later.
While there are some loan servicers that do allow you to make your payments with a credit card, it is not always the best idea (not to mention the fact that some lenders do not even accept credit card payments.) Let’s take a closer look at why you may want to reconsider paying your student loans with your credit card, if you have been thinking about doing it to help stay on top of your payments.
Understanding the Transfer of Debt
When you make your student loan payment with a credit card, you are not really making much headway with your overall level of debt. You are simply shifting your debt from one line of credit to another. If you think about it, the average student loan interest rates are usually under 10%. Credit cards, however, tend to have a higher interest rate, with averages anywhere from 15-25%. Why would you want to transfer that debt from one line of credit with a lower interest rate to one with a higher rate? This means you will ultimately pay more due to the higher rate.
When Paying Your Student Loans With a Credit Card Can Be a Good Idea
There are a few times when it may be a good idea to make your student loan payments with a credit card. Maybe you are just in a pinch and will have the money in the upcoming weeks, and you just don’t want to make your payment late. This can work, especially if you can have the balance paid during the grace period for your credit card. That means you won’t ultimately pay more in interest, and you won’t be penalized for making a late payment on your student loans.
You may also choose to pay your student loans with a credit card that offers a rewards program, just to earn some extra travel rewards or cash back rewards on large lump payments. This is only a good idea if you actually have the cash to make the payment, but you also want to get the most out of your credit card rewards loyalty program. If you choose to do this, you need to make sure to pay the credit card balance before the interest charges are applied to your account for that month. If you can’t ensure this, don’t be tempted to charge those minimum payments to your credit card.
Other Ways to Get Ahead With Your Student Loans
Most people who pay their student loans with their credit cards do it out of desperation so they don’t miss a payment. If this is the situation you have found yourself in, you may want to look into other options to make your student loan payments more manageable.
First, you may consider federal loan consolidation. This can extend your loan terms, giving you a lower monthly payment, and it can also simplify your loans into one payment each month. This is a great way to pay less each month, but keep in mind that it will cause you to pay more interest over the life of the loan. It is, however, a better option than transferring that debt to your credit card bill each month.
Another option would be the income driven repayment plans offered by the federal government. These programs help to make sure your monthly payments are affordable, based on your income. By doing this, you may also be extending your repayment terms, causing you to pay more for your loan overall. These are options that people should really only opt for when struggling to meet their monthly payments each month.
The last option is private loan refinancing, which is typically the better option. It allows you to choose your repayment terms, and it sometimes allows you to lock in a lower interest rate. These private lenders do need you to meet certain eligibility requirements, so it may not be an option for everyone. You should note that any federal student loans will turn into private student loans after refinancing.
As you can see, paying your student loans with a credit card is not ideal. It may seem like a simple solution, but in the end it can really cost you a lot of money. Consider the other options we discussed instead.