Using No-Interest Credit Cards to Pay Off Student Loans
Money Girl explains whether transferring student loan debt to credit cards is a smart move for your personal finances.
A podcast listener named Sandy asks:
“I have $52,000 in student loans that charge 6.8% interest. Is there any drawback to transferring some amount of my debt to no-interest credit cards if I pay them off before the interest rate goes up?”
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No matter if you need to pay off debt for school, a car, or a trip around the world, you may have wondered whether using a zero-interest credit card could help you save money.
In this episode we’ll cover everything you need to know about transferring student loan debt to credit cards and if it’s a smart move for your personal finances.
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What Is a No-Interest Credit Card?
One of the easiest ways to save money on debt is to reduce the interest rate that you have to pay. That’s where a no-interest credit card, also called a balance transfer card, can really come in handy.
These zero-interest offers allow you to move debt, in an amount up to your credit limit, to a new or existing credit card account. You can make the transfer online or using a paper check. They charge no interest during a promotional period, which generally lasts from 6 to 24 months.
But after the promotion ends, your interest rate will go up, depending on factors like your credit score and the going interest rate. Additionally, being late on a monthly payment could also cause your rate to skyrocket.
So, the key to using no-interest cards successfully is to pay them off in full before the promotion expires. If you don’t, you could end up paying an interest rate that’s much higher than if you hadn’t done the transfer in the first place.
Also, you’re typically charged a fee that ranges from 3% to 5% of the amount transferred. While this fee may seem high, it’s generally less than the amount of interest you would have paid if you hadn’t done the transfer.
One thing to keep in mind is that a credit card issuer can cancel your no-interest offer if you’re late with a payment. That could result in a much higher interest rate, a fee, or both.
While transferring student loan debt to no-interest credit cards may seem appealing, be cautious about choosing this strategy. Here are some pros and cons to consider:
Pros
- Lower interest payments.
- Flexible repayment schedule.
- No need to consolidate loans.
Cons
- High balance transfer fees.
- Risk of high interest rates after promotion ends.
- Potential for your credit score to drop.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
