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If you are struggling to make payments, you can use balance transfer checks or an intermediary service to transfer student loan debt to credit cards. An intermediary service, such as Plastiq, makes payments to the loan provider on your behalf. Making student loan payments with a credit card may have some benefits, depending on the card terms. But doing so also carries some serious risks. U.S. Department of the Treasury regulations prohibit lenders of federal student loans from accepting credit card payments. Although there are ways to get around these regulations, the real question you should ask yourself is: *Is it worth it? *
If you are struggling to make payments, you can use balance transfer checks or an intermediary service to transfer student loan debt to credit cards. An intermediary service, such as Plastiq, makes payments to the loan provider on your behalf. Making student loan payments with a credit card may have some benefits, depending on the card terms. But doing so also carries some serious risks.
U.S. Department of the Treasury regulations prohibit lenders of federal student loans from accepting credit card payments. Although there are ways to get around these regulations, the real question you should ask yourself is: Is it worth it?
Using An Intermediary To Make Payments
If you don’t have a checking account, or you simply don’t have enough money in your checking account to cover your student loan payment, an intermediary transaction may be worthwhile. Businesses like Plastiq accept credit card payments with a 2.5 percent fee, then send a check to your student loan servicer.
If your credit card rewards program exceeds that 2.5 percent fee, an intermediary transaction may actually work in your favor. Unfortunately, it is rare to find a rewards credit card offering more than 2.5 percent; most only give a max of 1.5 percent in the form of cash http://www.rksloans.com/payday-loans-de back rewards or equivalent points. In some cases, cards might double or triple points when you make travel or dining-related purchases, but the same does not apply to intermediary payments.
If, however, you are using an intermediary service for the sole purpose of making your monthly payment on time, the best credit cards to use are those that allow you to recoup the greatest portion of the 2.5 percent fee charged by the intermediary.
Similarly, if you have private student loans or federal student loans with a higher interest rate, it may be beneficial to pay a significant portion of those loans, or the full balance, through an intermediary service, thus shifting the balance to a credit card with a lower interest rate. But with most federal student loans having low interest rates, this scenario isn’t particularly common.
If you do find yourself with a high-interest rate loan, however, transferring the balance to a low-interest credit card may help. In fact, with many credit cards offering a zero percent introductory rate, this savings could be significant. But use caution; only do this if you are certain that your current student loan interest rate is very high (usually greater than 4.5 percent) and you are confident in your ability to pay off the credit card balance during that zero percent introductory period. Make sure you do the correct calculations before you decide to go this route.
In reality, there are generally more drawbacks than benefits to using a rewards card to make student loan payments. For starters, even when cash back rewards programs can be used to your advantage, you must have a zero percent interest rate and pay the full balance every month to make these rewards work for you. Otherwise, the outstanding balance will cancel out any rewards that you may have earned.
And even in the best case scenarios, using a credit card to pay your student loan can quickly become a slippery slope. Unexpected expenses can lead to an overwhelming credit card balance. If you become unable to pay your balance in full when you make your monthly payments, the interest rate on your student loan balance will quickly increase as it compounds along with the balance of your other charges and late fees.
Using Balance Transfer Checks To Make Student Loan Payments
You can also use a credit card-issued balance transfer check to make student loan payments if you’ve fallen behind, or you have an unusually-high interest rate on your student loan. Credit card companies often send these to cardholders when a new card is issued, and randomly throughout the life of the card. If you don’t have these checks on hand, however, you may be able to request them directly from the credit card issuer.
Balance transfer checks, which are essentially a cash advance, typically start with zero percent interest. But this promotional period is limited. Furthermore, cash advances don’t come free, or even cheap; the balance transfer fee is typically anywhere between one and five percent, with between three and five percent being most common. With such a high-initial fee, any cost savings are usually eaten up on day one.