Making Student Loan Payments with Credit Cards
It takes a lot of money to go back to school and most Americans are only able to pay their way by getting a student loan. Once you leave school, either because you have graduated or dropped out, it's time to think about how you'll go about paying that money back.
Depending on your student loan agreement, you have to start making payments on the money you have borrowed and the first payment will be due either six or nine months after you leave school or when you attend classes less than half time. The lender will contact you and let you know when they expect that first payment.
Penalties of Late Payments
If you haven't found employment that pays enough for you to be able pay on time, the loan may go into default. This is a serious financial hazard. Your income tax refunds may be seized and you could even become ineligible for loans available through the VA or FHA. Garnishment of your wages could also be a result of an unpaid student loan.
Because of the serious consequences of loan default, may people contemplate making student loan payments with credit cards. This is a possible solution as Visa, Master Card, American Express and Discover are all accepted as methods of payment on a Federal student loan. But does it make long term financial sense to put your payment on a credit card?
If you are anticipating receiving a substantial amount of money in the near future, transferring the balance of your student loan to a credit card that offers 0% interest can be a short term solution. Be warned that if the balance isn't paid off by the time the introductory period has passed on the credit card you will have interest and maintenance fees added to the balance. If you find yourself making late payments, the consequences could be costly. Not only will a late fee be added to your credit card, the issuer could cancel the introductory offer and regular interest rates would immediately apply.
There are often hidden fees associated with transferring balances from one line of credit to a credit card. Make sure that these fees will not end up costing you more for your student loan in the long run.
There may be times when an unforeseen expense makes it impossible to make your student loan payment on time. If this means that you are searching for a way to make only a single payment on time so that you don't default on your loan, the temptation to use the credit card may be irresistible. Before you call and give them your card information, contact the issuer of your loan and explain your circumstances. It's possible that you can negotiate an agreement.
The interest paid on your credit card is not tax deductable, even if the funds were used to pay off your student loan. The interest that you pay on the student loan, however, may be deductible on your tax return.
Before you go about making student loan payments with credit cards to keep them from going into default, ask about any deferrals or forbearance that you qualify for. It may be possible for you to negotiate an opportunity that will let you skip your payment for up to three years. Find out if you are eligible for a graduated repayment or income sensitive repayment plan. Like all loans, if you feel that you are unable to make the payments due, contact the provider as soon as possible to work out a solution before the loan is in default.
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State Guides to Credit Card Laws
- North Carolina
- West Virginia