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Some credit cards give you the flexibility to apply rewards you earn toward loan payments.
Theoretically, you could pay any loan – mortgage, personal, student or business – with cash back rewards. But some credit cards can pay loans directly with rewards.
Using credit card rewards to pay down loans seems like a win-win, but is it really a good idea?
Make sure you weigh the pros and cons before you proceed, and the list below can help if you’re uncertain whether your credit card permits you to redeem rewards to pay for loans.
Credit Cards That Apply Rewards to Loan Payments
These credit cards will direct rewards to your loan debt, saving you from requesting cash back to your bank account and then paying your lender:
- The Citi Premier Card allows you to use ThankYou Points to pay for student loans or other debts, such as your mortgage.
- Sallie Mae’s Accelerate card offers a 25% cash back bonus when you pay down any student loan with rewards. “If users have other financial goals – like paying off other loans or credit cards or saving for a down payment – credit card rewards are convenient bonuses,” says Ashley Boucher, director of corporate communications at Sallie Mae.
- The SoFi credit card gives you 2% unlimited cash back when you redeem rewards to pay for student loans or personal loans. “You can get 1% cash back on all eligible purchases, and when you redeem (rewards) directly to pay down eligible debt, save or invest with SoFi, you get an extra 1% toward your goal, for a total of 2%,” says Brian Walsh, senior manager of financial planning at SoFi.
Choosing a Credit Card to Pay for Loans
If you want a credit card that lets you use points to pay off a loan faster, the card should reward you well for purchases you typically make. A travel rewards card may not be helpful, for example, as you curb travel because of COVID-19 and probably won’t earn enough points to use toward a loan payment.
“Given today’s environment, some credit card rewards might not be as beneficial today,” Boucher says.
Also, some credit cards with the best rewards rates may charge annual fees and higher interest rates on balances compared with no-annual-fee cards, Walsh says.
“If you carry a balance from month to month or have multiple cards that charge annual fees, chances are you are not getting enough value from your rewards points to offset the costs,” he says.
Pros and Cons of Using Credit Card Rewards for Loan Payments
On one hand, credit card rewards could accelerate loan payoff, but on the other hand, you might miss out on other ways to use rewards or overspend to earn them. Consider these pros and cons:
- You could pay off your loan faster and save on interest.
- You can earn rewards for everyday purchases.
- You might receive extra value when you use your rewards to pay a loan.
- If you have unused rewards, this is a good purpose for them.
- You might be tempted to overspend on your card to earn more rewards.
- You could find better ways to use your credit card rewards.
- Your reward earnings might not be enough to make a big dent in your loan balance.
- You could redeem points to pay for a loan, but this choice might offer less value than others, such as travel.
Another Way to Use Credit Cards to Pay Loans
You have an alternative if you want to redeem rewards for loan payments but your credit card doesn’t offer a program. You can apply cash back earnings toward your loan.
But you will have to take steps to request the cash back and send the extra payment to your lender. You won’t have the convenience of having your rewards applied directly to a loan balance.
“This is a multistep process that might not maximize your rewards points, depending on your card,” Walsh says. “Before taking this approach, you should review your card spending patterns and goals to determine if this is your best action, or explore a card that better aligns with your situation.”