In 2020, the coronavirus pandemic ended tens of millions of Americans. Based on the U.S. Approximately 25.3 million employees claimed unemployment insurance during the week ending Sept. 26. That’s a big improvement from last year when 1,4 million people earned unemployment benefits.
Consumers may pursue options that they previously did not consider to keep up with their loan repayments — like paying their school loans with a credit card — with the current economic uncertainty. If you’re exploring this option, make sure you search the available online marketplace credit cards to find the best alternative for you.
Can you pay a student loan with a credit card?
You might be prompted to use a credit card to pay for your student loans, since it may help you stay out of default.
But it’s difficult to use a credit card to cover student loans. The United States Treasury Department rules don’t authorize federal student loan servicers to accept credit card payments, and it’s usually not an option with private lenders.
One way around it is to use a balance transfer check that certain credit card companies sometimes give to cardholders. These checks also come with a 0 percent APR promotion and a small transfer fee. Write the check to your lender and send it as payment.
Why paying a student credit card is a bad idea.
Although with the prospect of earning a 0 percent APR promotion on a balance transfer check, borrowers are not recommended to use a card to pay their student loans for many reasons:
Transfer fees would reduce your future savings.
When the promotional period is over, you pay a much higher interest rate.
Credit cards don’t have a fixed period of repayment, so there’s a strong chance that you’ll end up paying off the debt (again, far higher) for longer.
Other directions to follow
If you struggle to make your student loan payments, there are several alternatives to using a credit card that will place you in a stronger long-term position:
Forbearance: During the pandemic, several student loan servicers and lenders gave borrowers special forbearance plans. Contact your lender for details.
Income-driven repayment plans: If you have federal student loans, you might have access to one or more income-driven repayment plans. These plans allow you to reduce your monthly income-based payment.
For other transactions, use a credit card: though using a card might not be a smart idea to pay off your student loans, use it to cover other expenses, freeing up cash for your student loan payments. Visit Credible to learn and compare credit card choices.
Often it might also be worth considering refinancing your student loans. With low interest rates, you can score a rate lower than what you’re paying right now, which will reduce your monthly payment. Refinancing for a longer term will also lower the payment to a more manageable amount.
If you can apply for student loan refinancing at a lower rate than you actually pay, refinancing also has little drawback. You can use Credible to concurrently compare student loan rates from different private lenders without impacting your credit score.
The end of the line
Paying off student loans can be difficult in normal economic times, but when you struggle financially, it can be much harder. If you have federal student loans, use U.S. benefits. Education Department provides for situations such as forbearance, deferment, and income-driven repayment options.
Indeed, if you have federal loans, exploring these options can make more sense than refinancing student loans.
However, if you have education loans, refinancing them could save you money over time and also enables you to switch to a lender with a more favorable forbearance options.
Finally, don’t hesitate to start using a credit card to cover other costs while on your feet. Several cards deliver 0 percent intro APR deals, which will buy you time to pay off an interest-free balance.