Whether it’s a good idea to transfer a student loan to a credit card will depend on your financial circumstances. If you’re paying back a student loan with an interest rate of 6% or higher, using a credit card could save you a substantial amount of money.
Credit cards can free you from student loan debt
Bankruptcy lawyer Mark M. Billion is CEO of BankruptcyAnywhere.com. He says, “This isn’t legal advice, but based on my experiences, it’s nearly impossible to get out from under student loans. If you default, bankruptcy rarely helps. Student loan lenders can also garnish your wages and take tax refunds.”
Credit card balances—especially long-standing ones—are almost always discharged in bankruptcy. Student loan debt is never discharged in bankruptcy. So credit cards may enable you to get rid of student loan debt altogether.”
Credit cards could provide you with an option for getting student loans under control. You could save a lot on interest if you transfer a student loan balance to a credit card featuring an introductory 0% interest rate.
“Transferring your entire student loan balance to a credit card could also help if you file for bankruptcy in the future,” says Billion. “Credit card balances—especially long-standing ones—are almost always discharged in bankruptcy. Student loan debt is never discharged in bankruptcy. So credit cards may enable you to get rid of student loan debt altogether.”
How to transfer student loan debt to a credit card
Can you use a credit card to make loan payments? You can for some private student loans. But if you have a federal student loan, you aren’t able to directly use a credit card to pay the loan off.
Why can’t you pay student loans with a credit card? Usually it’s cost-prohibitive for the student loan issuer to pay the credit card companies the required fees.
It’s still possible to use a credit card to pay your student loan, though. You do what is known as a balance transfer. You transfer the balance, or a part of the balance, of the student loan to your credit card.
Here are the steps to transfer student loans to a credit card:
Apply for a credit card with a 0% introductory rate. (In order to qualify for a 0% credit card, you usually require a credit score of at least 700.)
Look for a card that offers 18-25 months of no interest. The longer the time without interest charges, the more money you’ll save.
Prior to applying, ensure that you can pay off the balance within the allotted time frame. After the grace period, the interest is likely to rise to double digits. This will probably be higher than your current student loan interest rate.
Determine how much you require for paying off your student loan. Call the student loan servicer for the amount. The provider will be able to tell you the most current balance.
Request a student loan balance transfer. Contact your credit card issuer and ask how the company processes student loan balance transfers. The credit card company may issue a check made out to the student loan provider. If that’s the case, contact the student loan provider and make sure the company will accept a check.
If the student loan provider doesn’t accept a check from the credit card company, you will need the credit card check made out to you. You can then deposit the check in your bank account and use the money to pay off the student loan.
In some cases, you may get a blank balance transfer check from the credit card issuer. You simply fill this out like a normal check. The amount you write the check for will be posted to your credit card account. You can write the check to yourself, deposit it, and then pay the student loan.
Be certain that the check is, in fact, a balance transfer check. Credit card companies also issue cash advance checks. Cash advances often feature higher fees and costs than balance transfers.
Pay off the student loan as soon as possible. Student loans compound interest daily. It’s best to pay off the loan as soon as you get the payoff amount, so you don’t end up owing more.
Benefits and drawbacks of paying a student loan with a credit card
Compare the pros and cons to make a better decision.
- You may earn points or cash back, if it’s a rewards card
- If you’re unable to pay, the credit card debt can be discharged through bankruptcy
- Pay off the loan with a 0% introductory rate credit card and save a lot in interest
- If you use a 0% credit card and don’t pay it off before the promotional period ends, you could end up paying much more in interest
- Balance transfer fees often cost about 3% of the transferred amount. (A few cards don’t charge a balance transfer fee)
- If you’re late or miss a payment, the promotional period may become void and higher interest rates can be charged immediately
- The interest paid on a student loan is tax deductible, but it isn’t on a credit card
- If you pay off a federal student loan, you give up certain loan benefits, including income-drive repayment plans, forgiveness, forbearance, and deferment.
In some instances, paying off a student loan with a credit card can work well. Just make sure you pay within the promotional period, so you don’t end up paying more in interest.
If you have a federal student loan you want to pay off, but don’t qualify for a 0% credit card, consider refinancing your student loan through a private student loan lender. Check out SuperMoney’s best student loans reviews & comparisons page for some options.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.