How to Use Student Loans to Pay Off Credit Card Debt

Many student loans cannot be used to pay off credit card debt. The majority of public loans, such as those offered by the US Department of Education, are tuition-only loans. Some private loans are tuition-only as well. This means you will have to seek student loans that can be used for living expenses if you intend to pay off credit card debt through the student financing.

 

Private Lender Programs

 

The US Department of Education offers a number of low-interest, comprehensive financing options for students. However, all of these options are direct tuition loans or guaranteed tuition loans, meaning they cannot be allocated toward living expenses. You will need to look for private lender programs in order to pay off debt with a student loan. Consider seeking lenders with specific student financing options since they will be most understanding of your circumstances. You will need to be prepared to spend slightly more on private loans due to higher interest rates, but many private loans are competitive if you have good credit.

 

Challenges to Securing a Private Student Loan

 

Once you have found lenders offering student financing that is not tuition-only, you can begin applying for the loans. As a student, you likely have a low income and low asset base. This can present a challenge when it comes time to get a loan. You can help your cause my securing the loan with an asset such as an automobile or home equity. If needed, you will have the option of using a cosigner in most cases. However, if you can avoid a cosigner, you will find a greater reward to your credit score once the loan is paid off.

 

Using the Loan to Pay Off Debt

 

Apply for a loan large enough to cover the outstanding balance you have on your credit cards, and also leave some room for additional fees and financing charges. You will be using the loan to prepay a debt, and you may be assessed some penalties. Thankfully, most credit cards and revolving debts do not have prepayment penalties. However, you may discover a one-time fee to close the card or to pay down any large balance.

 

Settling Credit Card Debt

 

You may not be able to receive a large enough loan to cover the entire sum of debt you have remaining with your credit card company. In this case, you can consider settling your debt to reduce your burden. Ask your credit card company about options to get a dicounted quote if you close the card in one lump sum payment. You may find the lender is willing to do so and forgive a portion of the amount you owe, especially if you owe many financing fees, or interest. The lender likes this option because it is guaranteed payment on the debt. The option works for you by eliminating your burden without having to go deeper into debt. 


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