If you are struggling with paying off your debts, you can decide to pay them using a credit card, depending on the type of loan and the agreements you have with the lender. There are a couple of things you need to put into consideration before you decide whether you want to pay your loans in cash or via credit cards.
Many banks and lenders prefer their debtors to pay back their loans in cash or through a bank transfer, debit card or check, but some lenders accept payment using a credit card. Although all your financial decisions are up to you, many financial advisors will not recommend that you pay your loans with a credit card, as there are some disadvantages to it. Before making any significant decisions that can harm your credit record, educating yourself on your options is good, as some are better than others.
If you are confused about your finances, and you have some questions you’d like to know the answers to, you are at the right place. Can you pay a loan off with a credit card? How can you pay off the loan with a credit card? What are the risks of using a credit card to pay your loans? All these questions will be answered in this article. Read to the end to know the answers to all your present financial problems.
How to pay off your loan with a credit card
A credit card is a plastic card issued by banks to their customers that can be used to buy things on credit. The card gives you access to credit points issued by the bank to enable the holder to buy and pay for goods. Credit cards can also pay for loan debts, but you must be very disciplined and careful to avoid increasing your debts and spoiling your credit scores.
If you want a credit card to pay your debt, you need a card that offers good deals on money transfers and zero charges. These will allow you to transfer all the money on the credit card into the current bank account. Make sure to request a transfer instead of a withdrawal to waive the cash withdrawal charges. After the transfer, you can use the money to pay off your lender. Depending on the agreement with the financial institution, you can pay the loan in full with interest if the money can cover the debt.
You’ll need a credit card with 0% transfer fees or a long-term low-interest rate for this strategy to be worthwhile and prevent you from accruing further debt. Otherwise, you can pay more interest than you borrowed. Remember that 0% credit cards and longer introductory rates are typically only available to people with good credit.
Risks involved in paying your loan with a credit card
A vital thing to remember is not to use a credit card for any purchase. If you applied for a 0% interest card to pay off your loan, you should not use the card for other purchases as the charges are usually very high. This will harm your credit scores.
Also, keep in mind that if you cannot make the minimum monthly payment, you risk losing your 0% rate and incurring fines. It’s best to make an effort to make monthly repayments that are more than the required minimum. And to ensure you never miss a payment, think about setting up a direct debit or standing order.
Consider applying for a new credit card with a 0% balance transfer rate if you can’t pay off the debt on your current card before the interest-free term expires. This will start a new interest-free period and extend the time you have to pay it back.
Other methods to consider to pay off your loans
- Use your savings
Instead of taking out a credit card, you can choose to use your savings to repay your loans. Paying your loans earlier than the loan tenor sometimes comes with extra charges, so check the early payment charges.
- Switch to a different loan
You can choose to apply for loans with lower interest rates, shorter loan tenors, or a combination of both factors. This will help you save money and maintain a good credit score.
- Overplaying your monthly pay
It always helps to pay ahead of time or play more than the money you are assigned to pay monthly. People who desire to reduce their debt but cannot repay their loans fully may find this strategy helpful. If you want to make overpayments, you must notify your lender in advance; fees can be associated with this.