Paying Off Your Student Loan With a Credit Card: How to Do It (If You Must)
It is not recommended to use a credit card to pay off student loans—for a variety of reasons. First, credit card interest rates are invariably the highest around—often even higher than private student loan rates. Second, you can’t defer a credit card bill if you hit a rough patch. Third, hidden fees and charges could make what looks like a good deal a nightmare in practice. If you have any other option at all, do not use a credit card to pay your student loans.
Some students, however, may have very little choice. And if that’s the situation you’re in, here are a few tips—and pitfalls to watch out for.
Use a zero-interest credit card
You get these offers all the time in the mail—0% interest for one year. The catch is that after the year is up, the interest will balloon. And there are other catches you may not be aware of. You can do this, but you’ll have to be extremely careful. Some things to keep in mind:
Paying off student loans with a credit card may seem like a good idea—especially if you have an offer for a 0% interest rate.
- You need to be sure you really can pay the student loan off within the year period—even if the worst happens and you’re unemployed all year. Otherwise, the interest rate may make the entire transaction work out to your loss.
- You can’t make any mistakes. Credit card companies are notorious for hitting customers with fees for being even a day late on payments—even if they didn’t send out your bill in time for you to pay it off within the deadline. They could even bump you up to their regular interest rate after a single late payment.
- There might be a hidden fee to transfer your balance. Some credit card companies charge you as much as 3%--or more—to transfer your balance to them. Be sure to ask about this and try to negotiate it down or eliminate it entirely.
- Be sure the rate isn’t variable—that it won’t jump for a specified period of time, during which you’re sure you can pay off the loan. You don’t want to find your interest rate is suddenly 19% after two months.
If you’re going to do it this way, bear in mind that a 0% interest rate is rarely a 0% interest rate. Read the fine print very carefully to find the hidden fees, terms and conditions, and penalties you might be subject to—and assume the credit card companies will make it very easy for you to make a mistake.
Be sure you have the available credit—and stay on top of your statements
Most colleges will allow you to pay your tuition directly with a credit card. Be careful when doing this, however. You may think the matter is settled when you give your credit card information to the school, but some schools won’t inform you if the card is declined. Then late fees may be assessed on your tuition bill. Before doing this, be sure you have available credit and keep on top of your credit card statements to make sure the payment went through.
Find out whether your college charges a fee
Credit card companies charge other companies a 2% fee for processing credit card transactions. Some colleges have started passing that cost on to students who pay their tuition bills via credit card. Before making the decision to pay your college tuition this way, find out whether your college charges a fee and do the math to decide whether the extra cost is worth it.
Only do it for small amounts
If you have a very high balance on your credit card, this could hurt your credit score. And a bad credit score can make it more difficult—and expensive—for you to buy a car, rent an apartment, or even get hired after you graduate. Avoid putting extremely large tuition bills on your credit card, as this could put you too close to the limit and make your credit look worse.
Paying off student loans with a credit card may seem like a good idea—especially if you have an offer for a 0% interest rate. But it’s usually not as good a deal as it looks. If you have absolutely no other choice, use your credit card only for small loans. Use a zero-interest credit card, but read the fine print very carefully—there’s always a catch. If there’s any other option, use it—it’s invariably a better deal.
USA Today: Paying College Tuition With Credit Cards Gets Costlier
MoneyCrashers.com: Should You Pay Off a Loan With a 0% Interest Credit Card?
UNLV Bursar’s Office: Payment Options
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch