How to pay student loans with a credit card

Before you make a decision, double-check the pros and cons. Robert Farrington, the founder of financial education website The College Investor, points out that there can be advantages to using a credit card – but you have to be careful.

“Carefully review whether you can handle the payments and whether the benefits outweigh the costs,” Farrington says. “In many cases, using a credit card to pay student loans might not be worth it.”

• Earn more rewards for making your payments
• Get a 0% APR if you have a promotional credit card
• Potentially pay off your debt faster if you can take advantage of the 0% APR

• Not every lender accepts credit card payments
• You could be charged steep fees for using a credit card
• Credit card interest rates are usually much higher and could cost you more if you can’t pay off the balance before a 0% APR ends
• Lose federal student loan protections in some cases
• Interest you pay may no longer be tax-deductible

How is your credit score impacted?

Don’t forget to think about your credit score. As you add student loan payments to your credit card, you could run into issues with your credit utilization. Credit utilization accounts for 30 percent of your FICO credit score, so you could see a negative impact even if you make your payments on time.

“Be careful about how you make your payments, and be sure to keep paying on your credit card as you use it,” says Farrington. “You don’t want to risk your ability to get a car loan or a mortgage down the road.”

You won’t be able to pay your federal student loans directly with a credit card, and some private lenders won’t let you use a card, either.

If using a credit card directly isn’t an option, Farrington says there’s a workaround with a third-party provider such as Plastiq.

You sign up for an account with Plastiq and put in your credit card information as well as the payment address for your student lender. Plastiq will charge your credit card and then cut a check to cover your student loan payment. This also works with other bills, such as your mortgage or rent, visit their website when a provider won’t let you pay with credit card.

“Plastiq charges your card, you receive [credit card] reward points, and your student loan payment is made on time,” says Farrington. “It can be a way to rack up rewards quickly. Just make sure you pay off your credit card balance each month.”

However, Farrington points out, Plastiq does charge a 2.5% transaction fee. Take that into account when deciding if your credit card rewards are worth it.

Are the fees worth it?

Even if it’s possible to pay student loans with a credit card, you still have to decide if doing so is worth the cost.

According to Farrington, you might face fees of between 3-5% if a lender actually accepts your credit card payment. If you’re paying $500 a month in student loans, that could be between $15 and $25. You’ll pay that – and any interest if you carry a credit card balance – each time you pay your bill.

But maybe you’re getting credit card rewards that are worth more than the $15 or $25 fee. Whether the extra you pay in fees is offset depends on the card, how many points you get per swipe, and how you can redeem those points later.

Farrington says to assume, as a general rule, that your points are worth one cent apiece; this can give you a quick way to estimate the value. If you get one point per dollar on your $500 bill, you’re basically earning $5 for your trouble. If you get double points per dollar, you may get $10 worth of points.