Did you know you can pay student loans with credit cards and rack up points and get great rewards?
Today I learned you can pay student loans with credit cards for reward points! Paying down your debt while racking up rewards? Sounds too good to be true, right?
If you have good credit and pay off your credit card monthly then you can earn rewards just for paying student loans with a credit card. Keep reading to learn how to pay your student loans with credit cards, why you would pay your student loans with a credit card, and what to avoid when you do it!
My Experience Paying Student Loans with a Credit Card
I came up with the idea of paying student loans with credit card after I was just checking on one of my student loan balances. It’s currently the only one I’m paying as I deferred the other last year when I was unemployed and couldn’t pay. I pay $83.96 each month and have been doing so for a couple years now.
After roughly two years of payments I’ve payed off $1,486. That’s almost $1,500 and it will be by next month. I honestly hadn’t thought about this much since it’s an automatic payment I don’t even think about anymore. It just gets paid each month like clockwork and I never think about it except when I’m doing my monthly net worth report. It’s pretty cool to notice I’ve paid off $1,500. I doubt I will ever speed up the process for this loan because I’ve got other priorities like paying off my credit cards then my higher interest (6.8%) student loans and savings for other things. I think paying $84 a month for a while is just fine with me.
Another thing I noticed while I was looking around my account was all the different options for making payments. The one that caught my eye was the one that allows you to pay by credit card.
Pay your student loans with a credit card?
My first reaction: that’s a horrible idea. Interest rates on credit cards are high and you would lose money… right? Plus they charge you a convenience fee for making a payment that way. My initial reaction was that it’s a horrible way to pay back the loans and the direct debit method is much smarter.
However, after thinking about it I decided there could be a few situations where using the option to pay your student loans with a credit card makes sense.
I ended up paying off the balance of this loan with my credit card. The loan provider did charge an extra convenience fee but I racked up an bunch of extra points I then redeemed for cash. That money exceeded the convenience fee and since I paid my card on time I didn’t pay any credit card interest. In the end I actually made money on this final loan payment.
At first I just couldn’t imagine finding myself in the situation where I’d use a credit card to pay off my student loans because I know how long it took me to pay off the credit cards when I first ran them up irresponsibly. But after using credit cards responsibly for a while I’ve learned they can be very beneficial with the rewards offered.
Benefits of Paying Student Loans With a Credit Card
After thinking about this idea of using credit cards to pay off student loans I realized it’s actually a great idea in some cases.
If you have a good cashback rewards card like the Discover it™ then you can actually make money paying off your student loans. There appear to be several benefits of using a credit card in this situation:
- earn extra reward points for using the credit card
- convenient way to make the payment you have to make anyway
- ability to make payments on time no matter what
You are going to make the payments anyway, right? Why not put them on the credit card receive the rewards from the card and then pay it off at the end of the month. As long as you are responsible and put the money toward the credit card you are taking on no risk and getting something out of it you wouldn’t otherwise. It’s always nice to get a little bit back.
When You Shouldn’t Pay Student Loans With A Credit Card
Sometimes some people have to rely on credit cards when they don’t have money to pay the bill at the end of each month. I’ve done it in the past and I get why it happens. Maybe there is no money. Or maybe you want to try racking up credit card bills with student loan payments then declare bankruptcy. It’s almost impossible to get rid of student loan debt otherwise. In these situations I wouldn’t really recommend using a credit card to pay your student loans.
Don’t pay your student loans with a credit card if:
- your credit cards are already maxed out
- you plan on declaring bankruptcy
- you don’t have money to make the credit card payments
- you only plan to pay your credit card minimum payments
Which Credit Card Is Best For Paying Student Loans
If you are going to pay your student loans with a credit card, make sure you do it with a card that gives you good rewards and no annual fee. I recommend cards for their great rewards without a fee.
My family has always used Discover cards so we are pretty loyal to them (Discover is one of the better credit card companies you can deal with and has been ranked #1 in customer loyalty 15 years in a row.)