IS USING CREDIT CARD REWARDS TO PAY STUDENT LOANS A GOOD IDEA?
Now that you have graduated from college and entered into the real world, you have quickly learned that you have bills to pay and student loan debt that keeps piling up. When it comes time to start making your student loan payments, you may be looking for alternative ways to make your payments instead of sending all of your cash that way.
If you have a piece of plastic in your wallet that earns you some rewards, you may be wondering if you should use these rewards to help you pay off your student loans. The short answer is yes, you can. But, before you jump for joy just yet, you do want to make sure that it is worth it for you to use these rewards to make the payments and you do need to make sure that you continue to meet your obligations and make on-time payments every month.
As we explore using your credit card rewards to pay off your student loans, think about whether or not you will be able to spend your money responsibly and continue to pay your credit card balance in full. It is important to know where you stand financially because you can easily become wrapped up in a debt hole, especially if you spend too much and cannot pay off your credit card balance.
So, if you are a responsible credit card user and you know you can keep up with your student loan payments while paying off your credit card balance, why not use these rewards to help pay you back.
Redeem Your Points and Apply Them to Student Loan Payments
Credit cards offer a number of different rewards and reward levels depending on how much you spend per month. If you want to earn money back or points to redeem for cash, you need to have a cash rewards card in your wallet.
These cash reward cards often allow you to earn a certain number of points or a percentage of your purchase whenever you use them for certain items. For example, your credit card provider may have one month or statement cycle where you earn three percent back on groceries and then the next cycle you can earn five percent back on all gas purchases.
These rewards and points add up quickly, especially if you use your card every time you head out the door.
There are different strategies you can employ to make sure you earn the rewards. For instance, consider paying all of your bills on your credit card to rack up the points. Once you have enough points, you can then cash them out and apply this amount directly to your student loan balance.
Some students who have used this method have paid as much as $1,000 or more per statement cycle.
Look into Specialty Rewards Programs
There are specialty reward programs out there that will allow you to earn cash back when you make purchases. Typically, these rewards programs will allow you to link your credit card and student loan account together and then when you make purchases, you instantly earn money back. This money back is automatically applied to your student loan account
These specialty rewards programs may not earn you a lot of cash back in one purchase, but you will notice a difference as you continue to use the cards and the rewards stack up.
How to Apply the Rewards to Your Student Loans
When you receive cash back or you redeem your points for cash back, you may receive a check for the reward. You can then cash the check and apply the cash directly to your student loans or you can have the check forwarded to your student loan servicer.
Before you have any checks made out to or forwarded to your student loan servicer, you need to make sure that your servicer accepts third-party checks for your account. If they do not, you will need to cash the checks and then mail the money to your loan servicer.
One of the benefits of applying your credit card benefits to your student loans is that you are able to choose which loan to apply the money to and the money is applied to the principal balance, which helps you pay down your loan amount.
Who Benefits the Most from This Method?
Graduates who use their credit cards responsibility and spend a lot on their credit cards will benefit the most from these credit card rewards. If you do not spend a lot of money on credit cards, you will find it difficult to earn rewards in the first place. Usually, credit card companies require you to spend a certain amount of money to be eligible to receive the rewards in the first place.
The best people to benefit from this method are also those graduates who have the means to pay off their credit card balances every month. Some credit card companies require you to carry a low or no balance to earn the credit card rewards. What this means is that you cannot simply spend a bunch of money, receive cash rewards, and never pay the balance off.
Final Thoughts on Using Credit Card Rewards to Pay Off Student Loans
If you have the means to and you are a responsible credit card holder, then it is a wonderful idea to use credit card benefits to pay off your student loans. While you will still have to make your monthly payments, you can use your credit card rewards to make a payment one month or use the additional earned rewards to pay a large chunk of your student loans.
No matter what you choose to do, you want to make sure that you do not simply stop making payments on your student loans or else you will find that your loans go into default. Default is not fun and can lead to serious implications such as liens, tax seizure, and wage garnishments.