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Consolidate Student Loan Debt With Credit Card Debt

Consolidate Student Loan Debt With Credit Card Debt

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Mark Cappel
UpdatedJun 7, 2024
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    4 min read
Key Takeaways:
  • Consider a cash-out refinance if you own a home with equity.
  • A credit card balance transfer might be an option if you get a great offer.
  • Generally, you need to look at student loans and credit card debts as separate issues.

Two Ways to Consolidate Student Loan Debt With Credit Card Debt

Loan consolidation combines your existing debts and loans into one loan. You start a new loan that pays off several older loans. A loan consolidation results in one monthly payment.

Here are two scenarios where it makes sense to seek a loan consolidation that combines student loans with credit card debt.

The first is pretty common: You’re a homeowner with equity in your home and co-signed on a private student loan. You should consider a cash-out refinance and use some of the equity in your to pay-off your credit card debt and the private student loans. This option makes sense when mortgage interest rates are low, like they are now, and lower than the rates on your student loans and credit debt. You are likely to have a longer term to repay the home loan. The benefit of this is a smaller monthly payment. It is a good option if you are struggling to make the monthly payments for both the credit cards and the student loan.

The total outstanding balance of student loans was $1.03 trillion as of September 2013. The 90-day or more delinquency rate at that date was 12%. By comparison, the delinquency rate was 6% in 2003. (Source: Federal Reserve Bank of New York)

The second set of circumstances is less common: You have small student loans and receive an offer from a credit card company to do a balance transfer that carries a low interest rate. You use credit card convenience checks to pay-off your student loans and transfer your balances from your other credit cards.

Advantages of Loan Consolidation

A loan consolidation is a great idea if you cannot afford your monthly payments, and loan consolidation cuts your monthly loan expenses. A loan consolidation also simplifies your monthly bill paying chore because one payment replaces several. A loan consolidation can save you money, if your new loan has a lower rate than your old loans and debts. Finally, a loan consolidation can help improve your credit score if you were missing payments previously, and you make your new consolidated loan payments on time.

Disadvantages of Loan Consolidation

There can be significant downsides to debt consolidation whether it’s a cash-out refinance or a credit card balance transfer. A cash-out refinance may raise your monthly payments, which can put you at risk for a foreclosure if you can’t afford your house payment. With both a cash-out refinance and a credit card balance transfer, you usually lengthen the loan term. Generally, the longer the loan term the more you pay in interest fees.

Some debt settlement companies are resolving debts for consumers struggling with private student loans. Consider debt settlement as an alternative to a loan.

Make sure you understand the short-term cost — the monthly payment — and the long-term costs of a loan consolidation before you sign on the dotted line.

How Student Loans Are Different From Other Loans

Student loans come in three flavors: Federal, state, and private loans. Federal and state loans are guaranteed by the federal government and state governments, respectively. These guarantees make the loans cheap, interest-wise, but come at a price. The federal Dept. of Education and state counterparts are allowed to garnish your wages and intercept your tax refunds without going to the trouble of suing you or otherwise involving your state courts.

In 2012, the average debt load for college graduates was $29,400 per student. About 7 out of 10 seniors carry student loan debt. (Source: College Access & Success Project on Student Debt)

Both guaranteed and private loans are largely exempt from discharge in bankruptcy. Bankruptcy is not impossible, but the qualifications for student loan bankruptcy are narrow. When it comes to bankruptcy, student loans are treated the same as child support and some tax debts.

Federal Student Loan Consolidation

You can consolidate federal student loans with a Dept. of Education Direct Consolidation Loan. You can't combine private and federal loans in a federal loan consolidation and you can't include any of your credit card debt. If you have federal student loans, check out the seven payment plans for consolidated loans the Dept. of Education offers. Some of these may create an affordable monthly payment amount.

Bills Action Plan

If you struggle with student loan debt and credit card, you can combine the two to make one problem one. But there are limited circumstances where you can consolidate these two different debts in one loan.

  1. If you have federal student loans, go to the Dept of Education’s Web site to learn if consolidating your loans will result in lower monthly payments or a faster pay-off on your loans.
  2. The Dept of Education will not allow you to add credit card debt to your federal student loan consolidation when doing a Dept. of Education consolidation.
  3. You can consolidate credit card and student loan debt if you qualify for a cash-out mortgage refinance. However, the rate and term may result in lower monthly payment, but not an overall savings.
  4. If your student loans are small, consider a personal loan or paying them off with a credit card balance transfer.

Dealing with debt

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Connecticut credit card delinquency rate was 3%, and the median credit card debt was $435.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.