Should You Pay Off Student Debt with a Credit Card Balance Transfer?

This probably comes as a surprise to no one, but college debt is at an all-time high. A few scary stats: Per the Federal Reserve, 2019 outstanding student loan debt loomed at $1.5 trillion. And among adults in the U.S. who have debt, 93% were shouldering their own student debt, while 81% were carrying debt from either their kids or grandkids.

As you can see, you’re not alone in trying to crush student debt. You may be familiar with some of the popular approaches you could take to save money in the long run — refinancing, switching student repayment plans — but another possibility is moving your loans over to a balance transfer card. The major benefit of these cards? They offer a 0% APR for a certain period of time.

And while it’s not a conventional payback method, if the card has a 0% APR or one that’s lower than the interest rate of your student loans, it could save you on interest. Here’s how to gauge whether it’s the best choice for you:

Know the Trade-Offs

If you have federal student loans, understand the benefits you’re giving up. Federal student loans offer different repayment plans, so you can change to a plan that’s better suited for your financial situation if your current plan isn’t working out. And, depending on your line of work, you may be eligible for public service loan forgiveness, a benefit you won’t find elsewhere. What’s more, if you’re struggling to keep up with payments, student federal loans give options such as deferment and forbearance.

Mind the Fees

You’ll first want to see what the transfer fee is. It’s usually a percentage of the amount you move, anywhere from 3% to 5% (with a fixed minimum amount). So if the balance transfer fee is 3%, and your student loan debt is at 6% interest, you would be saving 3% on the interest fees.

And just like when you’re shopping for any other credit card, read the fine print. Know if there’s an annual fee, or late fees, or a fee for any denied payments. Be aware of what you’re getting into before you make any moves.

Understand How It Could Impact Your Credit

Let’s say the balance on your transfer card is pretty close to being maxed out. In this case, It could affect what’s called your credit utilization ratio. Your credit utilization ratio is a fancy term that means how much of a balance you carry against the total limit on all your cards combined.

If you don’t have a high limit or you’re using a bunch of cards, it could potentially ding your credit.

Look at the Long-Term Perks of the Card

If you want to keep the card after you’re done paying off student loans, look at the long-term benefits of the card, suggests Kyle Kroeger, who is the founder of Financial Wolves. “Find a card that offers the highest benefit for the lowest cost,” says Kroeger.

For instance, besides the interest-fee period, you might want to consider credit cards that offer bonuses, suggests Kroeger. “If you get a bonus cashback for your initial transfer, even better,” says Kroeger. Other bonuses might include any travel perks, no annual fee, or extra points for certain types of purchases.

Do It in Chunks

Instead of moving all of your student debt to a balance card, you might want to test the waters by doing it in chunks. For instance, transfer what feels like a manageable amount to pay off in a year’s time. If you’re able to make all of your payments before the intro APR rate ends, you can do a similar transfer for another chunk of your student loans.

This strategy can work for smaller student loans, too. Kyle Kroeger did this when he decided to move his student debt to a credit card. He was offered a 0% interest rate on the card for 12 months.

As his student loans were at a 6% interest rate, for him, it felt like a no-brainer. “It saved me on interest, and helped me pay off my last piece of student loans that much more efficiently,” says Kroeger.

Have a Back-Up Plan

A big drawback of going this route is what could happen if you don’t pay off your card by the time the 0% introductory rate ends. Timing is everything. “Depending on the interest-free period, you only have 12 to 24 months to repay the balance,” says Kroeger. “If an emergency comes up and you can’t pay it completely off, you could end up paying high credit card interest.”

If that happened, could you tap into your emergency fund to help cover payments? You need to prepare for the worst-case scenario. If you’re not, and the intro APR ends,  it could null your efforts at saving on your student loans.

Know When It’s Not a Good Idea

Understand that a credit card balance transfer for your student loans might not be worthwhile. Such was the case for Kayla Sloan. While Sloan mulled over the option, she ultimately decided against it. Her reasons were manifold. For one, she got into the habit of paying more than the minimum on her student loan balance each month.

Because of that, she could skip a payment one month should she need to. “When you’re self-employed or have a fluctuating income, you have to account for low months,” says Kayla, an online business consultant. “And that’s one way I built some extra cushion for myself financially.”

Sloan also knew that she’d lose out on the aforementioned perks, such as deferred interest and job loss protection, that come with federal student loans. “I’d lose out on things that come with many student loans but not often with credit cards,” says Sloan. “There’s simply less flexibility for credit card debt versus student loans.”

What’s more, savings on interest fees wasn’t enough to justify going through the hassle. While she had a 6.8% interest rate on her student loan, she only had a few thousand to pay off. She would be saving a few hundred in interest fees. “It just wasn’t worth the paperwork and time to do the transfer,” says Sloan.

At the End of the Day It’s a Personal Choice

As you can see, it’s strictly a personal choice. While Kroeger and Sloan had similar amounts remaining, the same percentage transfer fee and roughly the same interest rate on their student loans, they made different decisions. Bottom line: There’s no universal answer.

While doing a balance card transfer with your student debt could help you save, you’ll want to know whether going through the trouble of doing it is worth the savings. You might end up saving a significant amount, or you might want to stick with paying off your student debt with a repayment plan.

If you do decide to go with a balance transfer for your student debt make sure it’s worth it. You’ll also want to make sure you have a plan ready for unexpected difficulties. Weigh all the pros and cons, and see what works best in your situation.