Credit Card Rewards. Student loan borrowers can earn rewards and apply the same rewards points to pay their student loans be it federal or private. According to wealth advisors, there are a ton of ways student loan borrowers can use credit card points like travel-related benefits or gift cards, so savvy consumers should check whether the card allows points to be redeemed for a student loan rebate – a check to their student loan servicer.
Can You Pay Student Loans With a Credit Card?
The U.S. Treasury Department no longer allows student loan payments to be done using a credit card. Even though this is the case, some people still try to look for ways to transfer their student loan balances to a (cash rewards) credit card.
However, there are still a few things you’ll have to consider before making that transfer from your student loan lender to your credit card company. So let’s see how you can earn credit card rewards from paying your student loans, how to do it, and if it’s a good idea to do so.
How to Get Out Of Paying Your Student Loans
If you are dealing with a student loan servicer that accepts credit card payments for no fee or for a low fee (or is willing to waive the fee), you can earn significant cashback by using your credit card in making your loan payment. It will also depend on whether you are the type of person who always pays your credit card bill in full every month.
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Getting the Right Card to Transfer With
You have to start by applying for and getting approved for a. Credit card with a large signup bonus plus ongoing cash rewards. Look out for something like $500 cash back after you spend $5,000 or more within your first three months of card membership. And additionally 1% back on all purchases. These cards are usually reserved for people who have good to excellent credit.
Note, however not all credit cards are created equally. Thus, not all cards allow you to transfer your loan balance. This means you’ll have to ensure you have the right card. According to WalletHub, the following companies offer students the option of transferring their student loan balance over to their credit cards: Pentagon Federal Credit Union (PenFed), Barclay’s, Wells Fargo, Bank of America, Capital One, SunTrust Bank, CIT, Discover, USAA, and U.S. Bank.
As of 2020, SunTrust’s Prime Rewards card is among the. Best balance transfer cards and additionally, Bank of America’s Travel Rewards card and Capital One’s Quicksilver Cash Rewards card are among. The best rewards cards available as of 2020. Now, this is the card you’ll use to make a large. One-time extra payment on your student loan.
However, before you go ahead and make a payment, ensure your credit card issuer won’t characterize the transaction as a cash advance and obtain the confirmation in writing. You can also intimate your credit card issuer ahead of time that you are going to be making a large transaction so that it does not get flagged as fraudulent.
After You Make a Payment
After you make a payment, you have to watch your credit account to ensure the transaction posts as a purchase and not a cash advance. If all goes well, you’ll meet the requirements to earn the sign-up bonus, additionally earn 1% back. You’ll then want to pay your credit card bill in full and in a timely manner to avoid incurring interest or late fees.
Using this strategy will help you accomplish three financial goals at once. These include: taking a chunk out of your student loan principal balance, saving all the interest you would have paid on that principal over the years, and earning significant credit card rewards.
If you are in luck to have a student loan servicer that accepts credit card payments for any amount with no fee, there’s no reason not to pay your student loan bill using your credit card every month so long as you are not carrying a credit card balance.
Thoroughly Review the Terms
Ensure that you know your limitations and the terms and conditions of your card before you make the transfer. The first step you have to take is to ensure you can transfer only as much as you can afford to pay back to the credit company. Try not to overindulge just to get the points or the rewards if you can’t at least meet the minimum payment requirements of your credit card.
On the other hand, if you are doing a balance transfer, understand that these transactions may come with a higher interest rate. Thus if you can’t make the full payment at the end of the statement month, you may be paying a higher interest rate than a regular purchase transaction. If this is a new card, you may be able to benefit from low-or no-fee balance transfers for the first six to twelve months.
How to Make Your Payment
If you can’t do a balance transfer, you can contact your credit card company for a convenience check. You are to write this the same way you write a check from you. Bank account unless it’s drawn on your credit card. However, bear in mind, convenience checks can also. Come with a high-interest rate, so you’ll want to know what rate and fees apply.
You also have the option of making payments via third party processors. Like Paypal, Stripe, Plastiq, or Square. Note, these systems will charge your credit card directly. And thereafter send a check or a wire payment to your student loan company. However, beware: You may be charged a fee for using their services. Some of these processors charge a percentage of the payment balance. Thus you’ll want to ensure how much more you’ll be paying. Also, some of these companies may offer incentives and promotions or lower fees.
Will it Hurt Your Credit Score?
When you pay off a large chunk of your student loan with a new credit card. It can actually help your credit score in several ways. When you apply for a new credit card, it dings your credit score temporarily. However, the increase in your total available credit from the new card’s credit line can help in. Boosting your credit score. Paying down the balance on your student loan can also help your credit score positively.
On the other hand, charging a large payment that uses up more than 30% of your new card’s available credit can hurt your credit score. But if you pay off the charge before your statement is issued. That large balance won’t be reported to the credit bureau and won’t hurt your credit score. Your on-time bill payment will help your credit score.
At the end of the day, most student loan providers won’t. Allow you to pay your student loan with a credit card. Some may charge a fee for doing so or will limit how much you can charge. These rules are made to save lenders money on credit card processing fees and. To keep consumers from turning relatively low-interest student loan debt into higher-interest credit card debt.