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Is It a Good Idea To Use Student Loan to Pay Off Credit Card Debt?

It’s rarely a good idea to pay off credit card debt with student loans, since you could find yourself in the position of taking out further loans or paying more in the long term if you take this action.

College students and their parents use student loans to assist pay for their schooling expenses.

It transforms the nature of your debt and, as a consequence, might bring up new financial issues.

In this post, we’ll go through what you should know before deciding to pay off credit cards with student loans.

Check Your Student Loan Contract Before Taking Any Actions

According to the U.S. Department of Education, federal student loan money must be used to pay for educational costs.

If you paid any of those purchases using a credit card, you can use your student loan money to reimburse them.

You might also end up paying for other charges if you utilize federal student loan money to pay off your credit card debt as a regular payment.

But the conditions under which you may use your private student loans may differ from lender to lender.

Before borrowing to pay for other costs, you should check the terms of your loan agreement.

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Using Student Loan Money to Pay Off Credit Card Debt, Results In Conflict With Your Loan Agreement

Furthermore, there are legal restrictions on how student loans may be utilized.

On the other side, the federal student aid offices state that “all loan money must be spent on your education.”

Student loans are useful for paying tuition, food, and housing costs, as well as transportation and a personal computer.

The Department of Education is having difficulties monitoring and penalizing the misuse.

However, you may be fined or banned from future financial aid if your loan originator finds out that you used them for this purpose.

If your financial obligations were acquired while you were in school, some information may be hazy.

It’s conceivable that your FSA-qualifying educational expenses were met, and you utilized student loans to pay for them.

You could be free of repossession if you’re paying down credit card debt with student loans for generally approved educational expenditures.

It’s more convincing if you bought a new laptop with your plastic and then paid off credit card debts using student loans.

Consider How Much Interest You’ll Pay Before Taking Out Student Loans to Pay Off Your Debt

When it comes to lowering interest expenses, using student loans to pay off credit cards or other high-interest obligations may appear to be a good option.

The goal of government student loan interest rates is to make higher education more affordable and accessible.

For the 2020-21 school year, undergraduate direct loans (subsidized and unsubsidized) have a fixed interest rate of 2.75%.

It’s more than probable that the interest rates will be far lower than what a college student like you would qualify for with credit cards or personal loans.

Despite the fact that the typical credit card interest rate is about 15%, there is evidence to suggest that an undergraduate student credit card’s APR may be considerably higher.

Your interest rates are 5 times greater than federal student loan rates, which means your obligations will grow at a much faster rate.

The difference may be lower if you have a higher student loan interest rate or a lower credit card APR.

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It May Put Stress on Your Budget If You Pay Off Your Credit Card Debt Using Your Student Loans

You may be tempted to pay off credit card debt with student loan money since you may be able to put off your student loan payments until after graduation.

Also, student loans have lower interest rates than credit cards.

If you combine your credit card debt with the education debt you’re incurring after graduation, it may make your student loan payments impossible.

There are a few strategies to lower your student loan payment, but the majority of them result in an increase in interest over time (refinancing your student loan, for example)

How To Get Rid of Your Credit Card Debt Without Using Your Student Loan

If you’re having trouble repaying your credit card debt as a college student, there are a few things you can do that won’t involve borrowing from your student loan account.

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Before You Do Anything Else, Pay Off Your High-Interest Cards

Concentrate on paying off the debts with the highest interest rates first if you want to save the most money over time.

There are several options for paying off multiple credit cards if you have them.

Use the debt avalanche approach to make just the minimum payment on all of your credit cards except for the one with the highest rate in order to expedite things.

Apply any future payments to the card until it is paid off in full.

Then, pay down the one with the next-highest interest rate, and so on until all of your cards are paid off.

It’s Time To Stop Using Your Credit Cards

It’s more difficult to pay off your debts if you’re adding new debt each month.

To help you get started, set a credit freeze on your account.

Consider setting up a budget to ensure that all of your costs are covered without the need for debt.

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Increase Your Earnings

Working as a college student might be difficult.

You may even get rid of your credit card debt by taking on a part-time job or starting a side hustle as a tutor or freelancer.

It might take some time to eliminate credit card debt.

If you’re aggressive about lowering your expenses, boosting income, and focusing on high-interest liabilities, you may save money on interest charges while also speeding up the process.

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Frequently Asked Questions