How to Pay Student Loan with Credit Card
Many graduates are faced with hefty student loan payments after school. If you’re looking for ways to make your monthly student loan payments more manageable, consider using a credit card. Taking this step isn’t without risks, but with some careful consideration, it can be an effective strategy to reduce the burden of your student loan debt.
The Pros of Using Credit Card to Pay Student Loan:
- Budget-Friendly: Paying your student loan with a credit card can help you adjust your budget and make it easier to manage payments. You can spread out your payments into more manageable monthly chunks.
- Credit Utilization: Credit utilization is an important factor when assessing creditworthiness. When you use a credit card to pay your student loan, you reduce the amount owed and increase your utilization rate.
- Rewards: Paying down your student loan with a credit card that earns rewards opens up a great opportunity to earn cash back or miles on your debt repayment.
The Risks of Using Credit Card to Pay Student Loan:
- Costly Fees: Credit card companies often impose additional fees when you make a loan payment with a credit card. Depending on the card and loan type, the fee might be a percentage of the loan payment or a flat rate.
- Too Much Interest: Student loan interest is lower than most credit cards. Therefore, if you fail to pay off your credit card debt right away, you’ll have to pay more in interest for the debt that you paid off with the card.
- Credit Score: Making frequent loan payments with your credit card can make it difficult to track your payments and this might negatively impact your credit score.
Alternatives for Paying Student Loans:
- Income-Driven Repayment Plans: Income-driven repayment plans let you cap payments based on your income and other factors. With these plans, you can cap your payments at 10%,15% or 20% of your discretionary income.
- Federal Loan Forgiveness: If you have a qualifying loan and meet certain requirements, you may be eligible for federal loan forgiveness. You may have some or all of your loan forgiven after making qualifying payments.
- Get a Side Job: Working a side job or a part-time job can help you pay down your student loan debt faster.
Paying your student loan with a credit card isn’t always a good idea and should be done with caution. Before making a decision to pay off the loan with your credit card, carefully consider all the implications, the risks and the alternatives.
What are the advantages of paying student loan with a credit card?
1. Earn rewards: You may be able to earn rewards for each purchase you make with your credit card. This can include cash back rewards, airline miles, or points towards gift cards or merchandise.
2. Build credit score: Paying off student loan can help build a credit score. Since credit cards report to all three major credit bureaus, regular, consistent payments can help raise your credit score.
3. Flexibility: Paying a student loan with a credit card provides more flexibility for the borrower since credit cards usually have higher limits, allowing you to make larger payments.
4. Utilize a 0% APR: Some credit cards offer introductory 0% APR periods. This can allow borrowers to pay off their loan faster while taking advantage of a longer repayment period.
5. Get more time: Credit card companies usually give borrowers a grace period before charging interest on the loan. This can give the borrower more time to pay off the loan.