For many Americans, student loans are a necessary evil. With the rising cost of college, student loans are necessary for most college graduates to earn a degree. What many borrowers may not understand at the time they take out their loans is the amount they end up paying back is far more than the amount they borrow due to interest.

Student loan interest rates can vary considerably, depending on whether you have federal or private student loans, the creditworthiness of the borrower, and whether the interest rate is fixed or variable. Over time, the interest on a student loan can make it difficult for a borrower to pay down the principal on a loan, as many of the initial payments will go solely towards paying off the accumulated interest.

However, there are a variety of creative solutions to paying off student loans, including one way to potentially reduce or even eliminate student loan interest rates. By using a balance transfer credit card, some borrowers might be able to minimize the amount of interest they pay on their student loans — and ultimately pay less money on their debt.

How It Works

The way it works is relatively straightforward. Much like using a balance transfer credit card to transfer high interest credit card debt to a card with a low introductory rate, you can use the same process to pay off student loans with a credit card.

First, you should start by choosing a credit card with a zero percent introductory annual percentage rate (APR) offer. The longer the introductory period, the better — it will give you more time to pay off your student loans at the reduced interest rate. Make sure the credit card company allows balance transfers to be used for paying off student loans, and check for any fees, such as balance transfer fees, that could make the process more expensive.

Second, check with your student loan servicer to ensure you will be able to pay off your student loan using a check from a credit card company. The policies vary between private student loan lenders, and typically, the federal government will only allow balance transfers if you are currently in default. If your student loan servicer will accept funds from a credit card company, you can then start the process of applying for a student loan balance transfer. Figure out the balance transfer amount, making sure you have the proper information on hand regarding your student loans to provide to the credit card company.

Third, once your student loans have been paid off by the credit card company, start making payments on your card. Make absolutely sure you will be able to pay off the balance before the introductory period is over, or you may find yourself paying an even higher interest rate than what you paid with your student loan lender!

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What Are The Benefits and Drawbacks?

The primary benefit of using a balance transfer card to pay off your student loan debt is the ability to take advantage of the low introductory interest rate from your credit card. If you currently have a relatively high interest rate on your student loans, you could save thousands of dollars in interest payments simply by transferring your loans to a card with a zero percent interest rate.

Doing so also gives you a great incentive to pay off your student loans quickly. Unlike most student loans, which tend to have longer payment terms of ten years, introductory credit card offers are often much shorter. If you can afford to make these payments, you could pay your debt off completely in a year or two, rather than spreading out your payments over a decade or longer.

However, there are some major disadvantages to consider before transferring your student loans to a credit card. While the deadline for paying off your student loans can help motivate you to pay off your loans, you also must consider what will happen if you can’t pay it all off before the introductory rate expires. Interest rates on credit cards tend to be significantly higher than student loans.

If something happens and you can’t pay off your debt, then you will end up paying even more in interest — and you won’t have the options of forbearance and deferral that you may have with student loans. In addition, many credit cards charge a balance transfer fee of around 3 percent. This could cut into the interest savings for you, as that amount will be added onto your student loan balance.

Consider the Alternatives

While transferring your student loans to a balance transfer card may seem like a great idea, it can be risky. For many borrowers with high interest rate student loans, refinancing the loans with a private lender is often a better alternative and a safer way to reduce interest rates without the risks of balance transfer cards.

If you have federal student loans, income-driven repayment plans and other alternatives may be a great choice if you are struggling to make payments. Carefully consider each option to make sure you are not creating a bigger financial problem by trying to get yourself out of debt more quickly.