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How to Manage Your Student Loans Without Using a Credit Card

Paying off student loans can be challenging, and while it might seem tempting to use a credit card, this approach can be risky and expensive. At O1ne Mortgage, we want to help you find the best solutions for managing your student loans. Call us at 213-732-3074 for personalized mortgage services and advice.

Why You Shouldn’t Pay Your Student Loans With a Credit Card

Federal student loan servicers and most private student loan providers do not accept credit cards as a payment method. While there are workarounds, such as using third-party payment providers, balance transfers, or cash advances, these options come with significant drawbacks.

Added Fees and Interest

Using a third-party service like Plastiq to pay your student loans with a credit card can incur fees of up to 2.9% per transaction, plus additional delivery fees. Balance transfers and cash advances also come with high fees and interest rates, making them costly options.

Impact on Your Credit Score

Paying student loans with a credit card can increase your credit utilization rate, which negatively affects your credit score. High credit utilization can make it harder to get approved for other types of credit in the future.

Loss of Loan Protections

Transferring student loan balances to a credit card means losing important protections and benefits, such as forbearance and forgiveness options available with federal student loans. These protections can be crucial during financial hardships.

Alternative Ways to Pay Off Your Student Loans

Instead of using a credit card, consider these alternative methods to manage your student loans more effectively:

Student Loan Refinancing

If you have good credit, refinancing your student loans can lower your interest rate and reduce your monthly payments. This option is generally more cost-effective than using a credit card, and it allows you to maintain some consumer protections.

Income-Driven Repayment Plans

For federal student loan borrowers, income-driven repayment plans can limit your monthly payments to a percentage of your discretionary income. These plans also offer loan forgiveness after a certain number of years. The new SAVE plan, starting in July 2024, will further reduce monthly payments and shorten the timeline for forgiveness.

Deferment or Forbearance

If you’re experiencing temporary financial hardship, you can apply for deferment or forbearance to pause your student loan payments. This option is available for both federal and private student loans.

Loan Consolidation

Federal student loan consolidation can combine multiple loans into a single new loan, extending your repayment term and making certain loans eligible for income-driven repayment. This can lower your monthly payments while maintaining access to federal loan benefits.

The Bottom Line

Using a credit card to pay off student loans is generally not advisable due to the high costs and risks involved. Instead, explore other options like income-driven repayment plans, refinancing, or loan consolidation to manage your student loans more effectively.

For expert advice and personalized mortgage services, contact O1ne Mortgage at 213-732-3074. We’re here to help you find the best solutions for your financial needs.

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