This is a difficult question and the answer depends on several factors including;
The rate of APR on your credit card and your student debt
The repayment terms
So let's look at a typical student debt help example. Let's say your credit card debt costs you 7.9% APR, while your student loan may cost 3% april
In that situation it makes sense to the minimum pay for your student loan and the rest of your money to repay your credit card debt. As long as the interest on your credit card debt is higher than your student loan, aimed at cleaning up your credit card debt first. In the long run will reduce the total amount of interest you pay on your debt.
But what if the situation changes?
What if the interest on your student debt begins to crawl, and you find a great credit card deal? What should you do if your credit card charges 2.9% APR, while student debt is 4.9% APR?
Let's look at the pros and cons of the various student debt help options;
1) Focus on the credit card debts
IDEA: Continue paying both debts individually, making the minimum payment on your student debt while putting the rest of your money to your credit card. If the card is returned, use all of your income to repay your student loan.
REALITY: While the interest on your student loan is higher than your credit card, this option will cost you a little more interest in the long term. But this remains the safest option. As you'll see below (option 4), it is generally much safer to owe money on a student loan than it is about money owed to a credit card.
2) equally focus on both debt
IDEA: Continue paying both debts individually, but focus on repayment of both at the same pace.
Reality: This is similar to option 1 above, the only difference is that it will cost you slightly less importance, while the interest on student loans is higher than the credit card debt.
3) Focus on student debt
IDEA: Continue paying both debts individually, making the minimum payment on your credit card while putting the rest of your money to your student loan. Once your student loan is repaid, use all of your income to your outstanding credit card debt to repay.
Reality: This option is exactly the opposite of option 1, but uses the fact that in our new sample of the student interest on the debt dies at a higher rate. It will help you to save money on interest payments for as long as the interest on your student debt is higher than the credit card deal.
But it will remove more of your debt on the relative area of a student loan to save at the same time as leaving more of your debt to the mercy of the commercial loans sector (this is not always the best option, as shown below).
4) Consolidate
IDEA: Bring the entire balance of your student loan for your credit card to take advantage of lower april Using our new sample, this would lead to a slowdown in interest on your student loan from 4.9% APR for 2 9% APR offered by your credit card deal.
Reality: This may be a risky option. Okay, at this time maybe you can use a small amount of interest on your total debt to save, but you need the differences between credit card companies and student loan providers to consider.
Most student loan programs are run by the government or educational authorities. This may sound hard to believe, but outright profit is not their number one goal. And because many of these schemes are subsidized by the government, they often have very good repayment terms. Often much better than the best credit cards on the market. And they usually do not impose such severe penalties if you are late with repayment.
In contrast, credit card companies exist to make money. The more money they can from their customers happier their shareholders. So before your student debt over to a credit card, you should think long and hard about, because it is a single decision. In most countries, once you have a student loan is repaid, you can not borrow the money again.
How long will this low rate of 2.9% APR on your credit card with you? Is it only an introductory offer that will last a few months and then back to a lot of high interest rates? Are there penalties or restrictions in the fine print.
And what if you miss a refund? Most credit card companies pay a hefty fee as a late repayment. And if that was not enough, some will even transfer your debt to a much higher interest rate just because you miss a repayment. So if any of these things happen would wipe out all your possible savings immediately. And there was nothing you could do.
Other things to consider; Filling your credit card with a student debt can affect your credit rating. In some countries the interest paid on student loans used to reduce your income for tax purposes (you can not do that with a credit card). The psychological question - would you prefer two smaller loans or a big loan? Some people find it difficult to get motivated when the task ahead of them turns out to be larger.
Transfer student debt to a credit card can help you save money, but only if you ensure that each payment is made on time and your commitment to repay the debt for the special rate ends. But it is a big risk and there is no way back if you run into problems.
