Loan Debt and Student Credit Cards

By: Keith Adams

As some of you probably know, student loans can be a real killer. As if cash wasn't hard enough to come by in college, many young people are faced with the not-appealing prospect of having to pay off loans after graduation, in many cases for years. According to the College Board, the average student owes $17,500 after finishing college. That's not easy money to come by when you're just starting out on your career path.

However, what most students (and parents) don't know, is that moving your college debt to a student credit card can be a way of reducing the likelihood of financial problems that can stem from loans, such as higher-long term rates if the loans are consolidated. Also, student loans, unlike credit card debt, can follow you even after Chapter 7 bankruptcy. This puts them in the same category as damages from automobile accidents, criminal fines and child support payments.

While college students may not consider the ramifications that bankruptcy may have on repaying their student loans, the number of people who file for bankruptcy protection continues to grow. In fact, in 2005, the number peaked at 2 million, and is expected to continue to rise.

"The interest rates on some private student loans can be as high as on a credit card, and are subject to harsher treatment in bankruptcy," according to Robert Shireman, executive director of the Project on Student Debt.

Also, the interest rate on student loans isn't always as low as many people believe. Stafford loans currently have an interest rate of 7.14, according to credit cards dot com. However, if you've already consolidated your debt or are using unregulated private student loans, your rate could end up being much higher.

By switching to a lower-rate student credit card, having your loan debt moved to the card and staying on top of payments, you could potentially end up saving thousands of dollars. On the other hand, trying to apply this strategy right before filing for bankruptcy could backfire and you could end up stuck with the debt again, since credit card companies will investigate your spending habits prior to the bankruptcy to see if you were up to any fishy financial maneuvering in an scheme to take advantage of them.

In the end, you ultimately have to decide if this strategy is right for your specific financial situation. But its good to know that there's an alternative to paying off student loan debt directly.

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