This article will show how to earn credit card rewards from student loan payments. This technique is especially useful for someone who is aggressively paying down their debt resulting in payments of several thousand dollars over only a few short months. One disclaimer is that there is a nominal fee associated with this strategy. The fee is charged by the 3rd Party Service that makes this strategy possible. Therefore, this method should only be employed when the credit card rewards are more valuable than the transaction fee. The good news is that this is almost always the case when using this strategy to get the sign up bonus on a new credit card.
I have had student loan debt for just over a decade. During that time I prioritized investing over allocating additional funds to pay down my student loans. I always stayed current on all of my student loans, but I felt I could get a better return on investment from the stock market after the dramatic downturn caused by the financial crisis. Most of my loans had variable rates which were very low due to the drop in interest rates. I also felt that the market offered significant upside especially from high quality companies that were solely dragged down by fear.
However, within the last year or so I have started to see the scales turn. The rates on my loans have been increasing as the Federal Reserve has increased interest rates, and the stock market has soared reaching unprecedented levels. At this point I felt the guaranteed 4% return from paying down my loans outweighed the risks in the stock market. However, I wondered if there were any creative ways I could improve this return further.
When I started looking at ways to increase the return on my student loan payments I immediately thought about credit card rewards. I had recently discovered travel hacking using credit card rewards so I wondered if this would be another opportunity. In the past I had always used automatic withdrawals out of my checking account to make my student loan payments. I did this so I couldn’t be late on my payments and I got a small interest rate discount.
I called my loan company to see if I could make payments on my loans directly from my credit card. They told me that this was not possible. They could only accept payments from an account which had both an account number and a routing number. So a direct payment wasn’t going to work.
Disappointed I started looking for ways to transfer funds from a credit card to a checking account. My search found only one way to do this which was a balance transfer. However, balance transfers have very high fees and do not count towards earning a sign-up bonus on a credit card. So a balance transfer wasn’t going to work.
Finally, I looked to see if any 3rd Party Services existed that could make this transfer of funds possible. Thankfully I found that a few of these services existed. Upon review of the different services I found that the best one for my purposes was called Plastiq.
Plastiq works by converting a charge on your credit card into a check, wire transfer or ACH transfer for a 2.5% fee. This solves both of the problems I had encountered previously. Since the transaction is an actual charge on your credit card it counts towards earning the sign-up bonus. Also, it converts the funds into the check or ACH transfer that a loan company will accept.
The only drawback is that Plastiq charges a 2.5% for providing this service. However, this is a minor amount relative to the rewards that can be earned. Let’s walk through a simple example.
Let’s say that you wanted to pay down $4,000 on your student loans. If you have Plastiq make this payment for you it will cost you the following:
Reward Earning Potential
If however you open a new credit card, this $4,000 payment will likely allow you to reach the sign-up bonus. For instance, if you signed up for a new Chase Sapphire Preferred credit card then this transaction would earn you 50,000 Ultimate Reward points. These points are equivalent to $500. They are worth even more if used to book travel through Chase Ultimate Rewards.
Assuming you just take the cash, this strategy would make you $400 with very minimal effort. The beauty of this method is that it can be repeated over and over again if you have a significant amount of debt.
Return on Investment
The way I view the overall Return on Investment from this strategy is as follow (assuming scenario from example above):
I feel 14% is an excellent Return on Investment. I believe that this is much higher than the expected return from the stock market and it is guaranteed with no risk.
Through this process I found one additional way to make this strategy work even better. Plastiq offers a Referral Program which allows you to earn “Fee Free Dollars (FFDs)”. These FFDs allow you to process transactions through Plastiq without being charged the transaction fee. All you have to do is refer people you know to the service and they must sign up with your link. Currently when your referral makes their first payment through Plastiq totaling $500, you earn 1,000 FFDs and they earn 500 FFDs.
These 1,000 FFDs allow you to process a transaction for $1,000 with no fee. So essentially each referral earns you a discount of $25 in transaction fees. This is a great bonus if you have other people in your network who have student loans and wish to employ this method themselves. Anyone who wants to try out this strategy can you my Referral Code:1064660.
I personally have roughly $20,000 in remaining student loan debt so depending on the sign-up bonus amount I could execute this strategy between 5-8 times. My plan will be to look for the best bonus being offered each time I have saved up extra money to pay down my loans. I’m hoping I will be able to do this a couple times each year. By using this strategy in addition to earning credit card rewards through my normal monthly spending I should be able to acquire a significant amount of points/cash. I hope this strategy serves others as one more reason to pay down their student debt aggressively.