Why it’s so hard to payoff credit card debt?
Unless you’ve been living under a rock, you know that the cost of an education has skyrocketed in recent years. From kindergarten to university and beyond, the average cost of a four-year degree (and its many related expenses) is now well over $200,000. Unfortunately, this rise in tuition has occurred at the same time as wages have stagnated or fallen for most Americans. As a result, more and more people are getting caught with expensive student loans they can’t easily pay back. In fact, student loan debt currently stands at $1.5 trillion (or more than any other kind of consumer debt besides mortgage debt).
In response to this growing crisis, several credit card companies have started offering special student loan cards to their customers as an incentive to get them interested in financing higher education through these services. However, anyone who has taken out a credit card knows that these things have some serious drawbacks when it comes to paying them off quickly. Even though student loan credit cards might seem like an appealing option for those struggling with student loan debt, there are plenty of reasons why you shouldn’t get one if you can help it.
The Disadvantages of Having a Student Loan Credit Card
First and foremost, you need to understand that a student loan credit card is not the same thing as a regular credit card. Rather, it’s a type of “revolving credit” loan, which means you take out a certain amount of money and then you have to pay it back monthly with a combination of the amount you borrowed plus interest. Now, the good news is that the interest rates on these kinds of loans tend to be lower than on regular credit cards. The bad news is that they are still pretty high by most people’s standards. Plus, if you miss a payment or otherwise default, you will likely get hit with high penalties, fees, and/or negative marks on your credit score. And if you have other debts, like your student loans or a mortgage, you should remember that you can’t just ignore them.
Interest Rates on Student Loan Cards are Pretty High
As mentioned above, student loan credit cards generally have lower interest rates than regular credit cards. However, this doesn’t mean they are necessarily a good idea. Why? Because even though the interest rates on these cards are generally lower, you are also likely to have a higher balance due on your student loan credit card than you would on a regular credit card. As a result, you will end up paying more in interest over the long run on a student loan credit card than you would with a regular credit card with a lower (but still significant) interest rate.
It’s Hard to Manage Your Other Debt While Paying Off a Student Loan Credit Card
Particularly if you are in a situation where you have multiple types of debt, you likely want to focus on paying the highest-interest debt off first. This will allow you to take the least amount of time to get it paid off and out of your life. If you have a student loan credit card, however, you might be tempted to use it to help pay off your other debts. However, this is generally a bad idea because you will end up paying more in the long run because of the high interest rates on your student loan card. If you are short on funds, you should take advantage of the many interest-free payment options available for student loans or consider getting a co-signer or consolidator loan.
You Can Only Use Your Card to Pay for School-Related Things
This is obviously not true for every type of student loan credit card, but it is for many. With this type of card, you can only use the funds you’ve borrowed to pay for school-related expenses like tuition, books, room/board, childcare, and so on. Anything else you use the credit card for (including repaying other debt) will likely incur interest and/or penalties. Plus, you should be aware that the money you borrow on a student loan credit card is taxable.
You Might Get Sucked Into Bigger Debt With a Student Loan Credit Card
There is a good chance that using a student loan credit card to pay off your other debts might cause you to get deeper into debt. After all, even though it’s a lower interest rate than you might get with a regular credit card, it’s still a pretty high interest rate by most standards. Plus, you should keep in mind that the interest rates on your student loan credit card will likely be even higher if you have a bad credit history. One way to avoid getting deeper into debt is to refinance your student loans.
Student loan credit cards can be an appealing option for those who need to borrow money for school-related expenses and have no other way to get it. However, you should be aware that this type of credit card has some notable drawbacks. In fact, student loan credit cards generally have higher interest rates than regular credit cards and make it harder to pay off other debt as quickly as possible. If you need to borrow money to pay for school, you might want to look into other options besides a student loan credit card.