Can I Use Credit Cards to Pay for Student Debt?

Should you use a credit card to pay back your student loans? The answer for most people is an absolute no. The reason why people might want to do this is a lot of cards will give, especially people with high incomes and high credit scores, a 0% intro APR, often as long as a year and a half, on credit card debt. Now generally there's a balanced transfer fee, you know, anywhere from one to three percent. Three percent I think is the common number. And so you might look at that interest rate and say, wow, I could get a lower interest rate with my credit card APR than if I go and refinance it with a private lender, so maybe I should do a balanced transfer. So pros and cons of a balanced transfer. In general, the pros is you're not having to pay often a really high interest rate with other credit card debt. People tend to use balanced transfers for consolidating their credit card debt into a single credit card. And the credit card companies are offering you that 0% APR because they know that a high number of the people that do that are not going to actually pay the debt off in the required minimum length of time, and then that credit card is going to make a lot of interest income on the people that forget to pay the full amount of the credit card loan off. And so that's the big con, is that it's kind of playing with fire. You're kind of playing with financially a loaded gun that could really hurt you if economic times switch and you can't afford that monthly payment. Keep in mind, federal student loans, they allow you to pay 10% of your income towards the loans. So by definition, it's never unaffordable. And that means if you are at all worried about the affordability of the payment, you should absolutely not be using a credit card to pay your student loans. You should be allowing for the ACH deduction, which often allows you for an extra 0.25% off of your interest rate as well. So what situation would you ever consider using a credit card to make your student loan payments? There are some companies that will accept credit card payments, and if you are rock solid financially, where this is not a concern for you at all to make your payments on your student loans, perhaps you get special rewards on your credit card. Maybe you're trying to hit a certain amount of the threshold for an airline bonus program post-pandemic. You want to travel constantly and get a companion pass with Southwest or something like that. Maybe you have qualified for a card that gives you 2% back and you're able to get that reward applied and pay less on your student loans as a result of that. In general, that's pretty difficult to do. Like I said, most companies won't accept credit card payments at all. Some companies will, for a fee, allow you to pay with credit card, but they get charged a credit card fee, and so generally they charge you a fee for that service. If there's anyone that might consider this, you might consider it once you pay down most of your student loans, and then maybe you could qualify for a balance transfer and work with one of these companies that allows you to indirectly make credit card payments even with places that don't allow it, and then you could make that payment and get that 0% balance transfer benefit for those several months that you could get it for. But really, you have to ask yourself the question, is the juice worth the squeeze? Probably almost certainly no. You should just keep it simple. You can use one of the banks on our list of lenders, studentloanplanner.com slash refi, to get cash bonuses of as much as $1,000 or more with a low interest rate that can often be in the 2% or even below 2% range for a five-year variable rate. So if you're thinking about doing a 0% balance transfer, consider doing a variable interest rate instead with a five-year term to minimize the absolute lowest interest cost possible on your student loans. Unfortunately, I've even heard of people that have pursued this strategy who, I'm just gonna say it, have even taken their own lives. I don't necessarily think that they did it because they were doing a balance transfer method, and I hesitated at whether or not I should even say that on this YouTube video, but it's a strategy where people are so worried about their student loans, they're often the only people that would use this, and if you're that stressed out about your student loans, you need to stop, take a breather, and realize it's not nearly as stressful as you think it is, and get a plan. Either figure it out by yourself from watching YouTube videos like these, or checking out our blog, studentloanplanner.com, or even hiring us to make a custom plan for your situation. But by no means should student loans stress you out that badly. If you're worried about your credit card balance transfer strategy maximizing your interest savings, please don't do that. Worry about making more money, worry about cutting your spending, worry about enjoying your life after a year that, more than a year that we've all been through that was just really difficult with the pandemic, right? So should you use credit cards to pay back your student loans? Emphatic no, not a good idea. Even if you could save some money doing it, it's just not worth the hassle. It's not worth having that loaded financial gun in your pocket that might go off at any second if we have a recession. So don't do it, refinance instead. This is Travis with studentloanplanner.com. Thanks for watching.