Is Using Student Loans to Pay Off Credit Cards a Good Idea?

Generally speaking, using student loans to pay off credit cards is a bad idea. You are paying off debt with another form of debt and this vicious cycle can negatively affect your credit score. In fact, depending on your student loan contract, you may not even be permitted to make this type of payment. There are only a few rare cases when this is a good plan, and even then it is not without drawbacks.

Paying Off High Interest Debt

The main reason a person should consider this option is to pay off high interest debt with low interest debt. Typically, credit cards will have higher interest rates than student loans. When you transfer the debt from a credit card to a student loan, then, you will end up paying less over time for the financing. If your student loans have higher interest rates than your credit cards, you should never take this step.

Consolidating Debt

Consolidating two debts into one can make the process of paying the debts more manageable for most people. This should only be done if you have already covered the costs of your education expenses for a semester or a year and have extra "living expense" cash left over from your student loans. Of course, this money can be used to make your student loan payments; in most cases, it should be used for this purpose. However, if you would like to totally eliminate your credit card debt and make only one payment each month, then you can "self-consolidate" by paying off the credit card with the extra cash you have.

Avoiding Default

You may not want to take drastic steps to avoid a delinquent payment, which will only drop your credit a small amount and disappear from your record totally after a few years. However, you should take all steps possible to avoid a default. If you simply cannot make your credit card payments in any other way and are facing default status on the credit line, then you may consider using your student loans. However, it is best to only pay the amount required to bring the account to current, not pay down the entire balance. Try to budget better to pay down the balance so you minimize the negative impact of the debt transfer.

Drawbacks of Paying Off Debt with Student Loans

In each of these scenarios, no matter how necessary, paying off one debt with another debt is not wise in the long term because you are only delaying the inevitable bill that is due to your creditors. You are not actually resolving the issue. The goal in making any debt payment should always be to reduce the total amount you owe. Paying only interest or transferring the debt elsewhere will not get you closer to this goal. For students in particular, it is best to only use student loans for necessities to avoid building up too much debt. You will thank yourself once you start earning and income and your payments come due.


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