Personal loans can be such a convenient way to cover larger expenses. But what happens if your circumstances change and you find it tough to make your loan payments? If you’re trying to get some breathing room in your budget, you may wonder if it’s smart — or even possible — to pay off a personal loan with a credit card. After all, credit cards offer so many perks, from cash rewards to introductory 0% APR offers, that it might seem like a win-win.
Unfortunately, few lenders will accept credit card payments on a loan. And even if you can use your credit card to pay off your personal loan, fees and interest could cost you. We’ll explain when and how you can use a credit card to pay off a personal loan, and exactly what to watch out for if you decide to give it a try.
[Read: Best Personal Loans.]
Should You Pay Off Your Personal Loan With a Credit Card?
Supposing your lender allows credit card payments, should you pay off your loan with your card? Unless you have a very compelling reason, it’s probably not going to work out in your favor. Credit cards are an expensive way to borrow money, and if you use them to make payments on funds you’ve already borrowed, it could get pricey fast.
“I wouldn’t recommend it if you are going to leave a balance on your credit card and be charged extremely high interest for the debt, because this would be going from one monster to another,” says Gloria Garcia Cisneros, a certified financial planner and wealth manager at LourdMurray in Los Angeles. “However, there are cases when it makes sense.”
Here are a few things to consider first before you try to pay your personal loan with a credit card.
Pros
— It may be possible to save interest. If you have a balance transfer card with a 0% introductory APR offer, you might be able to move your loan balance over and save money on interest.
— It could help you avoid a late payment fee. If you’re strapped for cash, paying with your credit card could ensure your personal loan payment is on time and help you avoid late fees.
— You could consolidate your debt. Putting all of your debt in one place — such as your credit card — could make it easier to manage your payments.
Cons
— Credit cards usually carry high APRs. Usually, credit card interest rates are much higher than the average personal loan.
— Shorter time to pay. Personal loan borrowers usually have between one and seven years to pay; whereas a credit card typically requires you to pay your minimum balance by the due date. But if you want to avoid interest, then you should pay in full. That means you’ll only have a few weeks until your payment is due.
— Fees will wipe out any savings. Paying by card may incur fees as well as interest charges, which only adds to the amount you owe.
— You probably won’t earn rewards. You’ll typically only earn credit card rewards when making purchases, not for other types of transactions.
— The process is complex. You can’t just throw a personal loan in your shopping cart and swipe your card to check out. If you want to pay your loan off with a credit card, it’s likely going to involve some extra steps and be much more complicated.
Transfer a Personal Loan Balance to a Credit Card
“Paying off a personal loan with a credit card is a form of debt shifting,” says Daniel Cohen, founding partner at Consumer Attorneys. “There is nothing wrong with debt shifting per se, as long as you recognize that it needs to be strategic, not desperate.”
If you decide you want to pay off your personal loan using your card, there are a few different methods. One way is to transfer the loan balance to your card if it’s allowed, but there’s usually a fee of 3% to 5%. On a $5,000 balance, that could be up to $250 just in fees from your credit card issuer to make the move.
Balance Transfer Cards
You could transfer your balance to an existing credit card, but it makes the most sense to move your personal loan balance to a balance transfer card. These cards usually have very low introductory APR offers, such as 0% for 18 months. After the balance transfer promotional period is over, the card’s APR kicks in. If you haven’t paid off the money you transferred by that time, you’ll owe the regular interest rate on the balance.
In addition to the balance transfer fee, keep in mind that your card will need a credit limit that’s higher than your personal loan balance if you want to move it over.
Use Your Credit Card’s Cash Advance
Another way to use your credit card to pay a personal loan is with a cash advance. You can get a credit card cash advance at an ATM or by using a convenience check provided by your card issuer. You might also be able to transfer the funds online or request an advance in person at a bank that offers this service.
However, be cautious when taking this route. Cash advances often have higher interest rates than credit card purchases, with interest that accrues as soon as you get the cash. Unlike the card’s regular purchase APR, cash advances typically do not include a grace period.
Considering the expense, using your card’s cash advance feature should be a last resort.
[Read: Best Balance Transfer Cards]
Consider a Third-Party Service
You could consider using a third-party service that accepts credit cards and makes payments on your behalf. For example, Plastiq will take your credit card payment and send a check to any vendor or biller — including your personal loan lender, even if they don’t accept card payments.
However, whenever you introduce a third party into the payment process, there are costs. With Plastiq, you’ll pay a hefty fee of 2.9% of the payment and $1.49 for the check to your lender, plus you’ll have to pay interest on the payment for your credit card (on top of the interest you’re paying on the loan).
[Read: Best 0% APR Credit Cards.]
Alternatives to Paying Off Your Personal Loan With a Credit Card
In some cases, paying your personal loan with a credit card is like paying interest twice on the same money: first when you borrowed it with the loan, and later when you pay the loan with your card. If you’d rather avoid that, consider these other options instead.
Talk to Your Lender
If you’re experiencing financial hardship, don’t put off calling your personal loan lender. Let them know what you’re experiencing.
“This can be intimidating, but they can work with you to find a solution,” says Garcia Cisneros. And it’s far better than letting payments default. You may find the lender is willing to defer your personal loan payments for a few months, change your payment due date or temporarily reduce your payments.
Refinance Your Loan
If your lender is unable to help you, you might consider refinancing your personal loan. This can help you achieve a smaller monthly loan payment, either through a lower interest rate or a longer repayment term. Keep in mind that refinancing can come with costs — such as origination fees — and if you refinance to a higher interest rate, you could wind up paying more.
Borrow From Friends or Family
If you’re simply in a short-term bind, consider whether you could borrow the funds for your loan payment from friends or family. Make sure you put the agreement in writing so everyone is on the same page about how much you’re borrowing and when you’ll pay it back — and keep your word by paying on time.
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Can You Pay Your Personal Loan With a Credit Card? originally appeared on usnews.com
