Making student loan payments with a credit card can be really tempting. After all, if your credit card offers you great rewards like points or miles, why shouldn’t you take advantage of that? By making your student loan payments with your credit card, you could be cashing in on double points and scoring a free flight to Vegas.
On the flip side, you might be looking for a way to make your monthly student loan payment during a month when your checking account isn’t quite as full as you’d like. Using a credit card can seem like a way to keep from defaulting on your student loans, if you’re unable to make your usual monthly payment.
So, is it even possible to pay your student loans with a credit card? Well, before you grab your wallet, there are a few things you should know about paying off your student loans using a credit card.
While the short answer is yes, there are ways to use your credit card to make a student loan payment, it can be a complicated process. And the risks may outweigh the benefits. Before using a credit card to pay your student loans, make sure you have all the information.
How can I make a student loan payment using a credit card?
Unfortunately, paying your student loans with a credit card is significantly more complicated than using your credit card to buy dinner from your favorite food-delivery app. In fact, some student loan servicers don’t accept credit cards at all. Others have restrictions on when and how you can pay using a credit card. And they don’t allow you to use a credit card as the source of your monthly auto payment.
Unfortunately for us phone-hating millennials, the best way to make a student loan payment with your credit card is to call your student loan servicer and ask if it’s an option. Many student loan providers don’t even offer information about paying by credit card on their websites. Although loan servicers don’t widely advertise payment by credit card, many allow credit card payments in certain situations. For example, some loan servicers allow you to pay with a credit card if it’s the last day before your payment becomes overdue.
Is using a credit card to pay off your student loans a good idea?
Even if your student loan servicer accepts credit card payments, you should seriously consider whether it’s the right move for you, because using your credit card for your student loan payments can have some major downsides.
First of all, your credit card likely has a higher interest rate than your student loans. Most federal student loans have an interest rate below 7% , while the average credit card interest rate runs from 15% to 19% .
In other words, you might end up paying even more interest on your loans by using your credit card. So while racking up those credit card points can seem enticing, they might not be such a great deal if you’re paying more on your student loans in the long run. To understand how much interest you’ll pay on credit card debt use our Credit Card Interest Calculator.
You also need to consider your credit score. Your credit usage makes up a whopping 30% of your FICO® score. Typically, you don’t want to use more than a third of the credit available to you. If you put a large student loan payment on your credit card, you might use a bigger chunk of your available credit than you should. This could ultimately bring down your credit score.
On top of the credit risks, there is also a real risk that if you’re unable to keep up with your student loans, using a credit card to pay them off could land you with student loan and credit card debt.
Is there a better way to manage my student loan debt?
If you feel like you’re going to fall behind on student loan payments, using a credit card isn’t your only option. If you have federal loans, you can make your payments more affordable by taking advantage of income-based repayment. Income-based repayment plans can get you a lower monthly payment. If you’re not able to make your monthly payments, ask your loan servicer about forbearance or deferment, both of which essentially pause your payments until your financial situation improves.
You can also consider refinancing your student loans. Refinancing consolidates your student loans into one brand-new loan. Ideally, this new loan has a lower interest rate and a more favorable loan term. By refinancing for a lower interest rate, or extending your loan term, you can end up with a lower monthly payment.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. FTC’s website on credit.