Why I Paid Student Loan with My Credit Card

It appears that I need to give more information on why I paid down my student loan using a balance transfer from my credit card.  I’m confident that it was the wise choice.  My student loan charges 8.5% interest and the credit card charges 3.99% interest.  The credit card is cheaper money.  Even with the $75 balance transfer fee I’ll come out ahead using the credit card.

There is a limit of $2500 in student loan interest that can be deducted in a year.  This transfer was for $4900 and a little over $1600 of that went to interest.  I plan to pay this loan down more over the year and it is possible that I’ll hit the limit.  Even if I don’t since my taxable income for the year will likely be low I don’t think I would be able to use all of the $2500 deduction.   I don’t think this deduction would allow me to get back more than the taxes I pay.

There aren’t really any programs I know of that will pay off law school loans. There are some LRAP programs but the ones I have seen would fall well short of paying all my loans.  I have about $50,000 in loans now and will probably have about $65,000 when I graduate.  I’m not worried about not having any loans available to be forgiven.  I’m trying to pay down my Grad Plus loan since it has an 8.5% interest rate but I plan to stretch my Stafford loan payments out as long as possible.

5 thoughts on “Why I Paid Student Loan with My Credit Card”

  1. Great move. While I don’t have any student loan debt, last year I financed a costly home improvement project 100% with credit card balance transfers and convenience checks.

    In the end, it saved me a ton over going a more traditional route — more than any tax deduction would have saved me (if it were tax deductable in the first place)

  2. I’m not questioning your decision to transfer your loan to your credit card, but I did want to point out that the interest reduces your taxable income and that it’s not a tax credit – i.e., the student loan interest deduction is not a dollar-for-dollar reduction in the taxes you pay, so it would be difficult for the deduction alone to reduce the amount of taxes you pay to zero. I think the only way that could happen is if the deduction takes you below the threshold for owing taxes.

    Also, I think there are a couple of public interest careers that have loan repayment programs for lawyers – I just read about this and now I can’t remember where, maybe in the California Bar Journal? Of course, those sectors don’t pay much at all, which is why there is repayment assistance.

    If you are able to get a reasonably well-paying job when you graduate and you manage your money wisely (which of course you will), I don’t think you’ll have any problem paying off your loans, and you’ll make much more money for the rest of your career than you would have if you hadn’t gone to law school. Actually, $65K really isn’t bad for a law school grad!

  3. You made the right choice for you so you rock!!! I would have done the same thing if I had that situation.

    I think a lot of people got on your case because you increased your ‘bad’ credit card debt, but they are overlooking the fact that even with interest and fees you can save money with the move you made.

  4. CFO- You’re right about the taxes. I know there are loan repayment programs but the ones I’ve seen wouldn’t come close to making all my loan payments. My total debt is actually going to be more like $75k

    Lulugal11,stngy1,and Brainy- Thanks!


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