The student loan outstandings have grown to alarming proportions over the past few years. It has been estimated that in the US alone, loans worth $1.5 trillion are outstanding on account of student loans. That would indicate a scenario where people have been finding it rather difficult to pay their student loan instalments once they finish their studies and land in a job. That is why one is searching for the info on how to pay for student loans with a credit card.
Can You pay for Student Loan with a Credit Card?
Like we stated already, paying student loans with a credit card may not be a viable solution. Just because some lenders – most of them – do not accept the repayment of a loan through credit card to their account. It may be possible if you opt for a third-party service provider or any other line of credit for making payments to clear your outstanding on a student loan.The best options would either be to transfer your loans to another card with low APR or decide to take a cash advance for paying off your student loan. In either of the cases, you would be going for an expensive route. In fact, you would be paying a hefty cash advance fee or balance transfer fee. The resultant interests charged to you are also expected to be rather expensive.
Why paying your Student Loan with a credit card a bad decision?
Anyone with an excellent financial literacy will definitely understand that paying for a student loan with a credit card can be a bad idea. There are several reasons for this conclusion.
Most of the lenders who provide student loans accept repayment in cash or other equivalent modes and do no accept repayment through a credit card. Of course, credit cards are the best financial options for paying off your balances, but using them for student loans may not be the right step you can take.
Here are a few reasons that experts want you to avoid paying for a student loan with a credit card –
- Credit cards do not come with a fixed repayment schedule. The minimum due is always just a fraction of your total due. This makes you complacent about making payments.
- If you make a regular monthly payment with a credit card and fail to make it within the credit card due date, you will end up paying the late payment fees.
- If you opt for the balance transfer route that we suggested above, and fail to make the payment within the stipulated due date, you will end up having to pay a higher rate of interest. This can even be as high as 17 per cent per month.
- You can use third party options for making a payment of your student loans using a credit card, but it will attract a transaction fee on each of your payments. The fee could be around 2.5 per cent, but varies from one service provider to another.
- A cash advance can be a good option for paying student loans with a credit card. However, that should be an option you should resort to only in the case of an emergency. The interest rates can soar to up to 25 per cent in some instances.
How to use Credit Cards to pay Student Loans faster?
While it may not be a wiser choice to make payments of student loans using a credit card, there are a few ways you can opt for so that the credit card can be used to pay student loans faster.
You can opt for a credit card that offers cashback rewards on payment of student loans (and other payments and purchases) and let you apply these rewards for paying of your loans. Make sure that you are paying off your credit card balances in full and within due date each month. This way, you can apply the cashback received for the payment of your student loans. However, in a zeal to get rewards, do not develop a habit of overspending. Your priority should be to pay off promptly.
Stay careful about clubbing student loan with Credit cards
Well, having understood the differences and difficulties involved in making payments of your student loans with a credit card, it would be a wiser option to give a serious thought to make use of the best strategy. The right option would be to pay an excellent attention to find a situation where the costs and credits on your credit card are much cheaper than what student loan would charge you.
Ideally speaking, it may be a great idea to pay for student loans using conventional means. While there are several options you can use for paying your student loan with a credit card; it may be a practical option in the long run. Using a credit card to pay your student loan may not be a viable solution. You may find yourself in a huge financial crisis if you are not careful.