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Can you pay off a loan with a credit card?

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    Paying off a loan with a credit card will depend on the lender and the type of loan. If your lender allows it and you are given enough of a credit limit, you may be able to pay a portion of your entire balance of your home, car or student loans with a credit card.

    Federal student loan issuers, however, are restricted by the Department of Treasury from accepting credit card payments.

    It's also possible that certain loan providers have their own policies regarding loan payment using a credit card. You can always contact your lender to learn about your options.

    It's more common to see credit cards paid off by debt consolidation loans, but there can be cases where it might make sense to consider using credit cards with low or zero percent promotional periods to pay off a loan.

    It's something to consider if you have a high interest rate on your loan, and your budget can handle the size of the monthly payments you need to make to wipe out the debt before the low or zero percent interest rate period expires.

    When does it make sense to pay off a loan with a credit card?

    The core question to answer is whether you will pay less interest when you pay down a loan with a credit card, or whether you'll end up paying more. And that really depends on whether you think you can clear your zero percent card's balance before its promotional period ends and its Annual Percentage Rate (APR) shoots up sometimes into the double digits.

    Another thing to consider is whether your credit card and loan APRs are fixed or variable.

    Your credit card APR might be lower than your loan right now, but if it's a variable APR, (rather than a fixed APR) there's a chance that it could increase based on changes to your credit score, prime rates and more.

    Something else to consider is your credit score. If your income is volatile and there's a chance you might be late with a credit card payment in the time it takes to pay off the loan, then your credit score could drop. And if that happens, your APR could increase, causing you to pay more in interest over time.

    Is it better to have a personal loan or credit card debt?

    Sometimes it's better to have personal loan debt, if the interest rate is fixed and you have a reasonably longer length of time to pay it off. But if the interest rate is really high, you may want to weigh the pros and cons of taking out a balance transfer card with a low to no interest rate period.

    The bottom line? To make credit card payment of a loan really work in your favor, you need to make sure you can pay off your debt before any low credit card interest period ends.

    Paying your loan with a low-interest credit card

    Here are some steps for researching and comparing low-interest credit card and loan rates to decide if this is the right option for you.

    Compare your options and find a low-interest or zero-interest credit card

    Contact your loan provider to find out if you are allowed to use a credit card to pay off the loan balance.

    Factor in any transfer fee, when comparing the savings you could reap from making the transfer from loan to card. Transfer fees are usually between 3-5% of the amount transferred.

    Find out if your new balance transfer credit card charges any additional fees —in addition to the balance transfer fee—to process the transfer between cards.

    Locate what your interest rate will be once your promotional period ends

    Remember, at the end of every promotional period a double-digit APR may begin to apply to your account.

    Compare this new interest rate with your current loan interest rate

    If the double-digit APR is much higher than what's on your loan, then make sure your budget can handle the kind of monthly payments you'll need to make to pay off the entire debt before the card's promotional period ends.

    Set up a repayment plan

    If you choose to go the balance transfer route, you'll find most balance transfer credit cards typically offer zero interest periods ranging from six-21 months. Work out what you need to pay each month to clear the debt within the promotional period, and put the payment on autopay.

    Making a decision

    To sum up: If you're currently paying off a high-interest loan, you might find it much less expensive to take out a balance transfer card with a zero interest promotional period and pay off the loan.

    But that might only be true if your loan debt is small enough for you to handle the monthly payments required to pay it all off before the promotion expires. Otherwise, you might find yourself paying a much higher interest rate on the card than you would have over the life of the loan.

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