ôô

Should I Use a Student Loan to Pay Off a Credit Card?

Find out Money Girl's take on the student loan/credit card connection.

By
Laura Adams, MBA,

Should I Use a Student Loan to Pay Off a Credit Card?

by Laura Adams

A Money Girl reader named Ryan P. asks:

“I have a $5,500 balance on my credit card that has a $7,000 credit limit. Should I use my excess student loan funds to pay it off?”

Not getting the free Money Girl Newsletter? Sign up for money tips and advice!

 

ANSWER:

The purpose of taking out a student loan is to pay for the cost of education and living expenses while you’re in school. Whether Ryan should use excess student loan funds to pay off a credit card depends on what he purchased with the card and whether he has additional education expenses to cover.

Let’s say Ryan’s $5,500 credit card balance is mostly made up of education expenses. If he used the card to pay for tuition, books, or course-related fees, using student loan funds to pay it down makes sense.

However, if Ryan’s credit card charges are consumer debts that go above and beyond his education or essential living expenses, paying them with student loan funds could be dangerous.

If Ryan is just beginning his education and is already using a credit card to live above his means, he might be tempted to take out more student loans to cover his card charges. That’s a destructive habit that could cause him to cripple his financial future by racking up massive education debt.

But if Ryan is nearing the end of his education and won’t need additional student loans, then he should use the excess funds strategically. Instead of sending them to his credit card, he should keep them as emergency savings in an FDIC-insured bank account.

Having cash reserves would keep Ryan safe if it takes longer than expected to get a job or if he has any large, unforeseen expenses. Once Ryan is out of school and starts earning income, he’ll be in a position to start paying down his credit card and student loan debts.    

Other Articles and Resources You Might Like:
Best Tips to Improve Your Credit Score
7 Steps to Check and Correct Your Credit Report
Get Your Free Credit Score (Without Hurting Your Credit)
9 Things That Can’t Hurt Your Credit Scores

Not subscribed to the free Money Girl podcast on iTunes? Click here to subscribe!

Education Money photo from Shutterstock

About the Author

Laura Adams, MBA

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 trusted and frequent source for the national media. Her 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. 

 

The Quick and Dirty Tips Privacy Notice has been updated to explain how we use cookies, which you accept by continuing to use this website. To withdraw your consent, see Your Choices.