Paying off my student loan

winkle1

My student loan has just shot up to 4.4%. Is it worth trying to pay it off with a 0% credit card?

podperson

Hi winkle,

To be honest I would be a little wary of moving a student loan (am assuming it is an official one and not just a loan got when you were a student?) If you do get a 0% balance card it will only be for say 18months at the very most and if you haven't managed to pay it off then the interest will shoot up. Also you will have to be paying the credit card payments on top of your regular student loan payments out of your wages. The best thing with the student loans in my opinion is that it takes your income into account, if you do lose your job or your wages get reduced you don't have to pay them until your income goes back up again, obviously credit cards are not so reasonable so also depends on how secure you are in your current income. If you have spare money (which am assuming you must have if could afford cc payments as well) maybe look at overpaying on it instead?
However I tend to take a quite cautious view these days and is all really personal opinion at the end of the day

DarkConvict

Student loans are the cheapest borrowing overall, martins advice is never to repay student loans. Obviously if its just £1000 left on the balance of the loan you could put it on a card but you only save about £30 over 12 months by doing so.

Remember when the card expires it jumps to about 17% or higher. And if your income drops you still must pay it, however student loans depend on just your income.

Read the MSE guide on repaying student loans - http://www.moneysavingexpert.com/loans/student-loans-repay

Lokolo

Could you pay off the CC before the 0% ends?

motoko

Even assuming that you CAN pay it off within the 0% period...

You can't generally pay off a loan using a balance transfer from a credit card, these are only for paying off other credit cards. There may be some exceptions which will allow you to pay off loans, but you'd still have to check whether this includes student loans as they are not normal loans. There are some credit cards which allow you to transfer money to your current account, which you could then use to pay off the loans, but these tend to have higher balance transfer fees. The fees for a normal balance transfer is typically around 3%, whereas to transfer to your bank account is typically 4%. So the saving on your 4.4% interest is not that big, especially considering that the balance transfer fee is payable on the total amount, whereas if you're paying the loan off throughout year then the 4.4% is effectively on your average balance over that year. Obviously this depends on the length of the 0% offer, if its more than 12 months its more likely to be worth your while, you really have to do the sums to be sure.

There are some exceptions, e.g. MBNA Platinum has 1.9% interest for 12 months on balance transfers and there is no fee even on transfers to bank accounts. If you qualify for this card then it may be worth considering it. But only if you can pay off the amount transferred within the 0% period and still keep up with loan repayments if there's any left on the student loan.

If you're thinking when the 0% period expires you can just transfer to another card then please bear in mind that while some people save (or even make) a lot of money by switching from one promotional deal to the next, when there is real debt involved this is much riskier than having a long term low interest debt such as a student loan, for the following reasons...

1. The minimum payments on the credit card may be more than you currently pay on your student loan and you may not be able to afford them.
2. You may not manage to get another 0% card, then if you can't pay it all back in one you'll be stuck with some ridiculous rate for years and your savings from switching will be wiped out in the first month's interest.
3. If you do get another 0% offer there is likely to be another balance transfer fee which may be as much or more than you would have paid in interest on your student loan. Good deals like this MBNA Platinum are rare, and may not happen to be available at the time you need to switch your balance again.
4. Student loans don't show on your credit report whereas credit cards do. Having an extra X thousand £ of debt on your report will make it harder to get credit in the future, e.g. another card to switch the debt to or a mortgage.
5. If your income falls in the future, your student loan repayments would be reduced or stopped and the debt would eventually be wiped, this does not happen with a credit card.

winkle1

Thanks everyone, some good advice here. I will stick with the monthly payments.