Savanna Hoffman
Student loan debt can be a heavy burden for new graduates, limiting their job choices and ability to buy a home, start a business, or even begin a family. In Canada, student loans and lines of credit form part of an individual's credit history, and late or missed payments can negatively affect their credit score. While it is generally not possible to pay student loans with a credit card directly, some workarounds exist, such as using a third-party bill payment service, a credit card balance transfer, or a cash advance. However, these options can be costly and complicated, with added fees and interest charges. In Canada, one option that may be possible is using the Canadian Tire MasterCard, which functions as a bank and may allow individuals to pay student loans while earning 1% back.
| Characteristics | Values |
|---|---|
| Possibility of paying student loans with a credit card | Generally not possible directly, but workarounds exist |
| Workarounds | Third-party bill pay service, credit card balance transfer, cash advance |
| Risks of workarounds | Costly, complicated, risky, negative impact on credit score, loss of loan protections |
| Example of a workaround | Canadian Tire Mastercard |
| Other options | Refinancing loans, signing up for income-driven repayment, building a credit history with on-time payments |
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What You'll Learn
Canadian Tire MasterCard
Paying student loans with a credit card is generally not possible directly in Canada. However, there are some workarounds, such as using a third-party bill payment service, a credit card balance transfer, or a cash advance. These options can be costly and complicated, with additional fees and interest charges. One credit card that has been mentioned in this context is the Canadian Tire Triangle Mastercard.
The Canadian Tire Triangle Mastercard offers a no-fee, no-interest financing option on equal monthly payments when cardholders spend $150 or more on qualifying purchases at participating retailers. Cardholders can also redeem their CT Money at various stores within the Canadian Tire network, including Sport Chek, Mark’s, L’Équipeur, and Atmosphere. The Triangle World Elite Mastercard, which is also offered by Canadian Tire, provides additional benefits, such as exclusive bonus offers and the ability to earn even more Canadian Tire Money when combined with Triangle Bonus Days and other promotions.
According to some sources, it may be possible to use the Canadian Tire Mastercard to pay student loans and earn 1% back in CT Money. However, others suggest that this may only apply to property tax and utilities, and that student loan repayments are not eligible. It is recommended to make a small test payment to see if it triggers any cash advance charges.
While using a credit card to pay student loans may provide some rewards or benefits, it is important to consider the potential drawbacks. Increasing your credit card balance through balance transfers or cash advances can negatively impact your credit score and result in higher fees and interest charges. Additionally, transferring a student loan balance to a credit card may cause you to lose favourable repayment options associated with student loans, such as forbearance and forgiveness. Therefore, it is essential to carefully evaluate the risks and benefits before using a credit card to pay student loans in Canada.
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Third-party bill payment services
It is important to note that not all credit card issuers allow this option, and there may be restrictions on which cards are eligible for making student loan payments through these services.
One way to test whether a credit card can be used for student loan payments is to make a small payment (e.g., $10) and see if it triggers any cash advance charges. If it does, it may be possible to call and ask for a one-time courtesy fee reversal.
Another consideration is that using a third-party payment service may result in the loss of loan protections, such as forbearance and forgiveness, that are typically associated with student loans.
In Canada, some sources mention the Canadian Tire MasterCard as a potential option for paying student loans with a credit card, although this may be limited to specific student loan providers or require additional steps to set up.
Overall, while it is possible to use third-party bill payment services to pay student loans with a credit card, it is important to carefully consider the fees, restrictions, and potential loss of loan protections associated with these services.
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Credit card balance transfers
While it is generally not possible to pay student loans with a credit card directly, a workaround is to transfer a student loan balance to a credit card. Some credit cards allow balance transfers, which could be beneficial if you qualify for an introductory 0% APR balance transfer offer. You will have a period of months to pay off the balance interest-free, which could be a good option if you can pay off the loans within this time.
However, there are some drawbacks to this method. Firstly, it may negatively affect your credit score. As your credit card balance rises, so does your credit utilisation rate, which is the second most important factor in your credit score after payment history. Secondly, when you transfer a student loan balance to a credit card, you lose any consumer-friendly student loan repayment options, such as forbearance and forgiveness. Lastly, balance transfers can be costly. There may be a balance transfer fee of around 3-5% of the amount transferred, and if you cannot pay off the balance before the 0% APR promotional period ends, your interest rate will increase and you will likely pay more interest overall.
Therefore, it is important to carefully consider the potential benefits and drawbacks before deciding to transfer a student loan balance to a credit card.
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Cash advances
While it is generally not possible to pay student loans with a credit card in Canada, there are some methods that may allow you to do so. One such method is through a cash advance.
A cash advance allows you to withdraw funds from your credit card, either through an ATM or via a paper check. While this money can technically be used to pay off your student loan, it is important to consider the associated costs. Cash advances typically come with high fees, ranging from 3% to 5% of the transaction amount, in addition to interest rates that can exceed 29.99%. These charges can significantly increase the overall cost of your loan.
It is worth noting that some credit card issuers may offer promotional periods with 0% APR on balance transfers. If you can take advantage of such an offer and are confident in your ability to repay the balance within the specified time frame, this could be a strategic way to pay off your student loan without incurring additional interest charges. However, failing to repay the balance before the promotional period ends will result in a high interest rate, potentially causing you to pay even more in interest charges.
Additionally, using a cash advance to pay off your student loan can negatively impact your credit score. As your credit card balance increases, your credit utilization rate rises, which can adversely affect your creditworthiness in the eyes of lenders.
Before resorting to a cash advance, it is recommended to explore other options for managing your student loan debt. These could include refinancing your loans, signing up for income-driven repayment plans, or investigating possibilities to reduce or pause payments. Remember that paying off student loans with a credit card can be risky and expensive, so it should be considered a last resort.
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Student credit cards
While it is generally not possible to pay student loans with a credit card directly, there are some ways to make student loan payments with a credit card using a few extra steps. However, these options can be costly and complicated.
Now, building a credit history is important when you need to show lenders you can be trusted to borrow money in the future. Student credit cards are a great way to start building this credit history. Many college student credit cards are designed for those new to credit, but being a student doesn't guarantee approval. Other options include secured credit cards and cards that build your credit gradually.
TD Canada Trust, for example, offers credit cards for students that come with benefits, security features, and some come with an annual fee. To be eligible to apply, you must be a permanent resident of Canada, meet the age of majority, and be able to provide a valid email address.
Some other student credit cards in Canada include the CIBC Dividend Student Visa, the Simplii Visa (which requires a minimum income of $15,000), and the Tangerine MasterCard (which requires a minimum income of $12,000). The CIBC Aeroplan Visa Card for Students is another option with no annual fee and an interest rate of 20.99%.
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Frequently asked questions
Generally, it is not possible to pay student loans with a credit card directly. However, some people have reported success using the Canadian Tire MasterCard, which functions as a bank of sorts, allowing you to earn 1% back in CT money.
You can make a small test payment of $10 with the card and see if it triggers any cash advance charges. If not, it should work for larger payments. If it does trigger charges, you can call and ask for a one-time courtesy fee reversal.
Yes, but they are costly and complicated. You can use a third-party bill payment service, a credit card balance transfer, or a cash advance. However, these options come with extra fees and higher interest rates.
Yes, you can consider refinancing your loans, signing up for income-driven repayment, or looking into options to reduce or pause payments. You can also include your student debt payments in your budget and try to make more than the minimum payments.
