Should You Refinance Your Student Loans with a Credit Card?

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Updated on Tuesday, May 2, 2017

Using a balance transfer credit card can be a great way to lower the interest rates on your debt to help you save money and pay your debt off faster. Most people only think about doing a balance transfer with high-interest credit card debt, but recently I’ve been considering a 0% interest balance transfer credit card to help me pay off my student loan.

After making my final credit card payment to be credit card debt free, I started thinking about how I could use a balance transfer offer extended by my creditor to help pay off other types of debt I still have. Since the highest interest debt I have remaining is my student loan, this is what I’m considering refinancing with a 0% interest balance transfer. My student loan only has a remaining balance of about $6,000, which means I could transfer the entire balance to the credit card and pay it off before the promotional rate expires, if I pay it off aggressively.

Of course, there are lots of reasons why you could choose to refinance or consolidate your student loans. I was curious whether or not a balance transfer could be a viable option as well.

Here are some of the pros and cons you should consider before deciding to refinance your student loans with a balance transfer credit card.

Benefits of Refinancing Student Loans with a Balance Transfer Credit Card

There are several benefits you could take advantage of by refinancing your student loans with a balance transfer credit card.

A Lower Interest Rate

One of the main reasons people choose to refinance student loans is to lock in a lower interest rate. For example, my student loans are at 6.8%. If I do a balance transfer to a 0% interest credit card, I could save hundreds of dollars on interest through the end of the 0% interest rate period on the balance transfer.

But keep in mind that not all balance transfers are created equal. You might get all kinds of different balance transfer offers from companies trying to entice you to sign up for a new credit card, or even transfer a balance to a card you already have. Some of these transfer offers will be better than others. You might encounter offers that have a 1% to 3% interest rate for a certain period of time, usually 12, 18, or 24 months. But the best balance transfer offers have a 0% interest rate, obviously saving you more on interest than the others.

Pay Off Student Loans Faster

Transferring student loan debt to a credit card can save money, but only as long as you get the balance transfer paid off before the promotional interest rate expires. This time limit is a big motivation for people to pay extra on their student loans to make sure the balance transfer is paid off before it expires. If you struggle with being motivated to make extra payments, the reality that your interest rate may spike up to 15% or more after a few months may be just the motivation you need to get serious about paying off debt. It’s worked well for me in the past when I’ve transferred high-interest credit card debt to a 0% balance transfer credit card, helping me to pay off $5,284.18 much faster than I would have otherwise.

Drawbacks of Refinancing Student Loans with a Balance Transfer Credit Card

Although using a balance transfer to help pay off your student loans sounds like a great way to save money and pay your debt off faster, there are some potential downsides you should be aware of.

Balance Transfer Fees

A lower interest rate makes balance transfer credit cards an attractive option for those looking to refinance debt, but you need to consider more than just the interest rate before deciding to refinance your student loans with a balance transfer credit card. Make sure you consider the balance transfer fee that many credit cards charge. This can eat away at the amount of money you save on interest. Luckily, some credit cards do have a cap on this fee at $50 or $75, which can be helpful if you plan to transfer a large balance that would otherwise result in a fee higher than that cap. But at that point, it could be difficult to get your student loan transfer paid off before the promotional interest rate on the balance transfer expires.

There are balance transfers without fees, but your options may be limited. If you find a no-fee, 0% interest transfer option you qualify for, it’s almost a no-brainer to use it to pay off other debt.

Potential Loss of Savings on Interest

As mentioned, it’s imperative that you pay off your entire balance transfer before the promotional interest rate expires in 12, 18, or 24 months. If you don’t, the high interest rate after the transfer expires will quickly negate any interest savings you earned by doing the transfer in the first place. In fact, you may end up paying more in interest than if you’d skipped the balance transfer in the first place.

You May Not Qualify

In order to use a balance transfer credit card to refinance your student loans, you first have to qualify for one. In order to qualify for many balance transfer credit cards you must have a credit score of at least 680.

Applying Could Ding Your Credit Score

If you don’t already have a credit card with a balance transfer offer available, you may need to apply for a new card. Anytime you apply for a new line of credit, it will ding your credit score slightly. This may or may not be an important factor depending on what your score is and if you plan to apply for any other credit cards or loans in the near future.

Loss of Federal Student Borrower Protections

A final and very important consideration to think about before you decide to refinance your student loans with a balance transfer credit card is the loss of student loan protections you may have. If you are refinancing federal student loans, you will lose the protections that are offered to you as a borrower, such as:

  • Income-driven repayment plans
  • The opportunity for student loan forgiveness
  • Deferment or forbearance
  • Discharge upon permanent disability or death

Some credit card companies may be willing to work with you in an emergency situation, but chances are high that even in those situations the flexibility offered to federal student loan borrowers is far greater. In some cases, you may be better off not refinancing your student loans in order to maintain your borrower protections.

With most low or 0% interest balance transfer credit cards, you can’t miss a payment or pay late. If you do, your promotional interest rate may be void and you will be subject to the regular interest rate, which could be 15% or more depending on the card and your credit score.

Despite these drawbacks, doing a balance transfer to help pay off your student loans can be a good idea if your goal is to get out of debt quickly while saving money on interest.

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