Use Credit Card Rewards to Pay Student Loans

While looking at an online comparison shopping website with her husband, Toni Dolce, 36, realized that she could use credit card reward s points to pay off her grad school debt.

"It's been about $1,000 and $1,500 per year that we've been able to cash in and go toward student loans," says Dolce, who has paid off $6,000 of her $35,000 debt from attending the American Musical Dramatic Academy. "When we went online to see where we could get the most value for our points and straight away it was student loans."

Student loan borrowers can use reward s points on credit cards and apply these points to pay off their student loans -- federal or private.

"When I pay my student loans, I pay from a check that is granted by Citibank," says Dolce, who has been using this strategy for almost six years with her Citi Forward ThankYou card. "They send me a third-party check."

Wealth advisors say there are a ton of ways to use credit card points such as travel-related benefits or gift cards, so savvy consumers should check whether the card allows points to be redeemed for a student loan rebate -- a check to their student loan servicer.

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Most borrowers aren't aware that they can use points this way, says Daniel Grote, a Denver-based certified financial planner at Latitude Financial Group. "It's more unique or less common to use it specifically for tuition or student loan payments."

The Citi ThankYou Premier, Chase Sapphire Preferred BankAmericard Cash Rewards and Sallie Mae's Upromise Mastercard, are among the credit cards with reward s points that offer this feature.

If a borrower spends $1,000 on gas or taxis, for example, on a reward s card and accumulates three points for every dollar spent on travel, those purchases are worth 3,000 points. Each card has its own point-to-dollar conversion rate, but 3,000 points might be worth $30, for example.

These points can then be used as cash toward student loans or mortgage payments, depending on the card.

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But credit card experts say borrowers should check if their student loan servicer accepts a rebate check from a third-party institution before pursuing this strategy.

Here are some pros and cons of using credit card points to tackle student debt.

Pro: If the borrower has good financial habits, using credit card rewards can help pay down student loans. "The pros of the strategy is that you're accumulating points with cash back rewards and those benefits stand out," the Denver-based advisor says, but he says the individual must be disciplined and pay off that credit card bill every month.

Grote suggests only using the card for certain expenses such as travel or student loan payments, so it's not all your monthly expenditures on the card if a sudden , unexpected bill arises.

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"It's a good strategy for someone who knows how to use credit cards and makes a payment every month," says Jeffrey Trull, content strategist at Student Loan Hero, a website for managing student debt.

Con: Missing a payment can damage a credit score. Borrowers can ding their credit rating with a missed payment.

"The debt spiral can happen from just two missed payment," says Grote. "If they lose track of a payment then then will have a negative impact on their credit if that payment is more than 30 days late."

Pro: Using a credit card can help build credit -- especially for young college grads. Good credit card usage can be part of a strategy to increase a credit score.

Most adults ages 20 to 24 have a lower credit score on average at around 635, according to Credit Karma, a website that provides free credit reports and scores. Good credit is considered to be 700 and above.

Experts say using a credit card and not exceeding more than 20 percent of that card's line of credit is a good way to maintain and build a healthy credit history.

"They're going to see a positive effect on their credit score by virtue of managing their credit in a responsible way," Grote says.

Con: Most student loan servicers don't accept credit cards for monthly payments. "There's not really an easy way to pay for student loans with credit cards," says Trull.

For most loan service providers, such as Navient or Great Lakes, borrowers have to call to make a one-time payment with a credit card. So borrowers have to call for each payment -- every month.

A person who is forgetful about payments might be better off using automatic payments to pay monthly bills, personal finance advisors say.

"Some servicers even offer a 0.25 percent interest reduction for automated payments," Trull says. "That's a great feature and it's not available from credit cards."

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Farran Powell is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at fpowell@usnews.com.