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Some credit cards allow you to apply rewards earned towards debt payments.
Theoretically, you could have repaid any loan – mortgage, personal, student or business – with a cash back award. But some credit cards may pay off the debt directly with rewards.
Using credit card rewards to pay off debt sounds like a win, but is it really a good idea?
Make sure you weigh the pros and cons before proceeding, and the list below can help if you are unsure if your credit card allows you to cash out rewards for paying off debts.
Credit cards that apply rewards for debt payments
These credit cards will reward your loan debt, saving you from requesting Cash back In your bank account and then pay your lender:
- City Premier Card Allows you to use thank you points to pay for student loans or other loans, such as your mortgage.
- Sallie Mae’s Accelerate Card offers a 25% cash back bonus when you pay off any student loan with a prize. “If users have other financial goals – such as paying off other debt or credit cards or saving for a down payment – credit card rewards are convenient bonuses,” says Ashley Boucher, director of corporate communications at Sally Mae.
- The SoFi credit card gives you 2% unlimited cash back when you redeem rewards for a student loan or personal loan. “You can get 1% cash back on all eligible purchases, and when you redeem directly (rewards) to pay eligible debt, saving or investing with SoFi, you get a total of 2% of your goals. Get 1% extra, ”says Brian Walsh, senior manager of financial planning at Sophie.
Choosing a Credit Card to Pay for Debt
If you want a credit card that allows you to score faster to pay off a loan, the card should be well rewarded for what you usually buy. journey Prize card May not be helpful, for example, because you curb travel due to COVID-19 and probably won’t earn enough points to use towards debt payments.
“Looking at today’s environment, some Credit card rewards Today may not be as beneficial, ”says Boucher.
In addition, some credit cards with the best rewards rates may charge annual fees and higher interest rates on comparable balances. No-annual-fee card, Says Walsh.
“If you keep a month-to-month balance or you have multiple cards that charge an annual fee, then chances are you are not getting enough value from your reward points to offset the costs,” he says.
Pros and cons of using credit card rewards for debt payments
On one hand, credit card rewards can accelerate loan repayment, but on the other hand, you may miss the other Ways to use rewards Or observe them to earn. Consider these pros and cons:
- You can repay your loan fast and save on interest.
- You can earn rewards for everyday shopping.
- When you use your rewards for lending, you may receive additional value.
- If you have unused awards, this is a good purpose for them.
- You may be lured to overspeed on your card to earn more rewards.
- You can find better ways to use your credit card rewards.
- Your reward earnings may not be enough to make a big dent in your loan balance.
- You can redeem points to pay for the loan, but this choice may offer a lower value than others, such as travel.
Another way to use credit card for debt payment
You have an option if you want to redeem the rewards for loan repayments but your credit card does not offer a program. You can apply cash back income towards your loan.
But you will have to take steps to ask for cash back and send additional payment to your lender. You will not have the facility to apply your rewards directly to the loan balance.
“It’s a multistep process that cannot maximize your reward points based on your card,” says Walsh. “Before taking this approach, you should review your card spending patterns and goals to determine if this is your best action, or locate a card that better aligns with your situation . “