Dear Debt Adviser,
I am currently in school, financed by student loans. I also have about $17,000 in credit card debt as well as a car payment. My question is: Should I get a student loan with deferred 7 percent interest to pay off my credit cards with a 6.5 percent rate? Then, once the credit card debt is zero, should I send the money that used to go to credit cards to pay for the student loan before payments are due? Are student loans better for your credit rating/report than credit cards? Thank you!
— Lucas

Dear Lucas,
A friend of mine once wanted to take a walk in the woods, but had trouble finding the forest because there were all these trees in the way. I’m afraid that you are concentrating on the details and overlooking the big picture! Your finances are dangerously overextended, and the relatively low interest rates on your credit card debt and the student loan you’re considering are not going to bring you back from the brink.

I can’t tell from your letter whether you are working to put yourself through school or if you are a full-time student relying exclusively on student loans to fund your education. Either way, before we talk about the best way to get you out of credit card debt, let me first ask a question. Have you stopped adding to your credit card balances? If the answer is no, you need to start there. I want you to begin to develop a budget that keeps your expenses in line with your income and stop spending more than you take in, particularly if your income is courtesy of a student loan.

Your question is really whether you should convert unsecured credit card debt into a student loan debt, which is one of the most heavily secured debts around. Because of past abuses, federally guaranteed student loans are generally not eligible for bankruptcy protection and can follow you all the days of your life until paid. My experience is that because of the bulletproof nature of these loans, there are fewer options to take, should you ever default on a student loan, making them doubly dangerous. So my answer is no, you should absolutely not pay your credit card balances with a student loan!

Based on your question, my guess is that you are 18 to 22 years old. Young people are full of optimism and more likely to imagine life working out mostly as planned. I thought the same thing when I was in school, that is, when I thought at all. But, as I gained more life experience, the fact that life doesn’t follow a straight line and is full of ups and downs became abundantly clear. Given the fact that you are financing your college education with student loans, the last thing I want you to do is increase the amount owed on them. Just ask any recent graduate who has significant student loan debt and who is having trouble finding employment in the current job market or who is woefully underemployed. I’m sure they will tell you that it was not in any of their plans to leave college and be unable to support themselves and their loans.

My suggestion is for you to make a concerted effort to pay off your credit card debt, just not with a student loan. Instead, I recommend you try to increase your income enough so that you can pay $400 per month toward your debt. If you can make a $400 payment each month, you will be debt free in four years. Even better, if you could make a payment of $520 per month, you would be out of debt in three years.

I also would recommend that you do one last thing while you are still in school. Take the steps you can to find out if your major is likely to lead to a job that will give you the income needed to pay your loans and support yourself without hardship. To get you in the income ballpark, I suggest that you first calculate what your student loan payment will be. To comfortably repay your loans, you will need to land a job that will provide you with monthly take-home pay (income after taxes) of at least five times your calculated loan repayment amount. For example, if your repayment amount is $500 monthly, you will need to bring home $2,500 a month.

Find the best student credit cards here

Good luck!

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