When money gets tight, it’s tempting to think about skipping student loan payment – or turning to credit cards to bridge the gap. But with higher interest rates and the potential for harsh fees, using credit cards to pay student loans is almost always a bad idea.
Can you use a credit card to pay off student loans?
Federal student loans will not allow you to pay your student loan off with a credit card directly. Instead, you’d have to use a third-party service and likely incur fees.
But you’ll also pay your credit card’s high interest rate, which only adds to your debt instead of solving the problem.
Can you use a balance transfer to pay off student loans?
Balance transfers often offer low or 0% interest rates for an introductory period. Your balance transfer lender will use their line of credit to pay off your student loan – as much as it can.
But there are serious drawbacks: most balance transfers only offer a low or 0% interest rate for a limited number of months. Make sure you can pay off the balance you’ve transferred during that period. Otherwise, you’ll likely face much higher interest rates than you pay on your student loan.
Your balance transfer also probably has a credit limit that only partially covers your loan. You’ll still have to make monthly payments on the balance of your student loan – plus the new payments on your balance transfer account. Transfer and origination fees are common with balance transfers too.
What’s the downside of using a credit card for student loans?
The downsides of paying off your student loans with a credit card are significant. Here’s a list of fees and interest charges that come with paying off your student loans with a different form of debt:
- Third-party fees to charge your credit card
- Transaction fees
- Additional interest charges
- Higher interest rates
- No access to student loan protection (like forgiveness and deferment programs)
Consider penalty fees and utilization ratio
If you use your cards for student loan payments, your potential late fees will likely be higher and be imposed with stricter standards than on your student loans.
You’ll also add significantly to the amount of credit you’re using – which could take your utilization ratio above 30%, a significant factor in determining your credit score.
Many student loans also come with extra help, including assistance during sickness and family death as well as programs to help when you change careers. Your credit card company issuer won’t be so generous, flexible or forgiving.
What if I can’t repay my student loan?
If you can’t make your scheduled payment, ask for help. Talk to your lender about lowering or pausing your monthly payments.
If you have a federal loan, sign up for an income-driven repayment plan. If you have a private loan, look into a modified payment plan. Not all lenders offer them, but it’s worth exploring.
Changing the terms of your loan or adding a new program won’t hurt your credit – as long as you make your scheduled payments.
