While there’s many ways to go about it, one way to avoid a bigger headache than the thousands of dollars of debt you already have is to pile some credit card interest on top of that. Here’s some reasons why you should NOT use a credit card to pay off those hefty diploma loans. And even though there are rumors, carrying a hefty balance, especially one as big as a student loan, doesn’t help your credit score.
1) The best intentions
If your plan is to shift your debt to plastic and then try to file for bankruptcy down the road... change your plan. This is called fraud, and will not only get you in trouble with Johnny Law, but you could be the subject of a lawsuit after your fraudulent bankruptcy filing leaves you responsible for the student debt.
The one exception here is if the credit card company offers a promotion to pay for your student loans, they can’t sue you if you file for bankruptcy. But fraud is fraud, and you still probably won’t get away with it.
2) Shiny introductory rates
You may be enticed by 0% intro APR credit cards, but you should be wary. A zero percent intro APR for 12-14 months looks nice, but if you aren’t paying off the debt in that amount of time, when the 15 percent rate kicks in you’ll be wishing you hadn’t gone down this road.
Federal student loans have a fixed rate of 6.8 percent, while the average private loan hovers around eight percent. Compare that to 15 to 18 percent interest rates that most credit cards have and you’ll be buried in more debt than you ever thought possible.
This also goes for racking up rewards and miles on your card, it might seem like a good deal at the time, but if you can’t pay it off, those rewards won’t do you any good.
3) Bite the bullet early
When you sit down with a ten-year plan to pay off those loans, also make a two or three year plan. You’ll be amazed the amount of money you’ll save without the thousands of dollars in interest. If you have steady employment and bite the bullet on entertainment and luxuries for a few years, you’ll be debt free seven or eight years before your friends.
Sure you might have to skip a few nights out a week with friends and maybe eat a few more ramen meals, but just think about how good it will feel to be debt free much sooner rather than much, much later.
Still thinking about using that credit card? Stop it. Credit cards are a great way to build credit history, use for convenience and become financially independent. But there are definitely things to avoid and shifting student loan debt onto plastic is one of them.