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Can I Pay Off My Student Loans With a 0% Balance Transfer Card?

Oct. 28, 2014
Balance Transfer Credit Cards, Credit Cards, Student Loans
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After making student loan payments month after month and feeling like you’ll never pay off your debt, transferring your loan to a zero-interest credit card can sound pretty enticing. But is it really worth it to use a balance transfer card to pay off your student loans? We’ll break down the pros and cons and help you find the best way to become debt-free.

First off: Are you eligible?

Before you ask whether you should pay off your student loans with a credit card, you’ll have to find out whether you can. Balance transfer credit cards typically require decent credit (or a co-signer), so you may not qualify for one if you’re just out of school or have a low FICO score. And even if you qualify, your lender might not accept it. You can only use credit cards to pay federal student loans if you’re in default, and private lenders’ policies vary. Check with your lender before going forward.

(Nerd note: If you have a good credit score or a co-signer, consider refinancing your student loans to a lower interest rate to save on the total amount you owe.

The good: Lower interest rates (at first)

Though student loan rates are lower than many others, they’re nothing to scoff at: The rate on new undergraduate Stafford loans rose to 4.66% this year. A credit card can help you save on interest payments. For example, if you paid off $5,000 in $300 payments over 18 months, a zero-interest credit card would save nearly $180 compared with the current Stafford rate.

And though it’s risky to rely on credit cards when you’re struggling to make payments, it’s possible to discharge credit card debt during bankruptcy; student loans cannot be discharged in most instances. Still, be careful: Bankruptcy can seriously hurt your credit and should be considered as a close-to-last resort. If you’re struggling to make payments on your current plan, consider switching your student loan repayment plan through the government.

The bad: What happens after the low rate expires

Putting your loans on a balance transfer credit card can save you money if you pay off the balance during the card’s zero-interest period, but you might run into trouble when the card’s rate rises. Balance transfer cards’ ongoing rates can easily double or triple Stafford rates, and it’s easy to fall behind.

Let’s go back to our earlier example. You’re still making $300 installments, but now you owe $15,000 and your credit card’s 15% interest rate kicks in after 18 months. It’ll take you five years, or 60 months, to pay off your debt on a credit card, compared with 56 months without. Four months doesn’t sound like a lot, but in this case, time really is money: You’d pay over $1,000 more in credit card interest than you would if you’d just stuck with your Stafford rates. If you can’t pay off your balance on time, you could end up paying through the nose.

Finally, when it comes to your credit score, not all debt is considered equal. It’s one thing to have high installment loan debt, like a mortgage or student loan – credit reporting agencies expect that. But having high revolving debt, like credit card debt, will hurt your score. You may find it harder to qualify for or get good rates on future loans.

I’d like to transfer my balance. What’s the best card?

If you’ve decided that transferring your student loans to a credit card is the best option, visit the Nerds’ recommendations for the top balance transfer credit cards.

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