Pay Off Student Loans With Low-Interest Credit Cards

Overwhelming student loans debt has become a major financial burden for millions of Americans — not only recent graduates but also those who finished college years ago. Data from EducationData.org shows that in 2020, nearly 45 million borrowers held student loans, with an average balance of $37,584.

While graduates from private universities typically owe more, students from public institutions aren’t far behind. Their average debt sits at $30,030, according to the same report. Overall, U.S. student loan obligations totaled $1.68 trillion in 2020, growing at a rate far outpacing the country’s economic expansion.

As tuition continues to rise and controversies like admission scandals shake confidence in higher education, many potential students are questioning whether college is worth the cost. But those who have already completed their education — or left school early — don’t have the option to reconsider; they’re left managing substantial debt and trying to stay financially afloat.

For many borrowers, staying on top of student loans requires more than scheduling an automatic payment and hoping for financial stability over the next decade or two. Instead, it often involves a mix of strategies designed to manage payments, reduce interest, and accelerate payoff wherever possible.

One option that gets far less attention — yet may benefit millions of private loan borrowers with strong credit — is using a low-interest credit card balance transfer. Although most borrowers can’t eliminate a full student loan balance of $30,000 to $40,000 within a 12- to 24-month promotional period, transferring part of the balance can significantly reduce interest costs. When repeated strategically, this approach can help borrowers pay down debt faster than expected.

However, this method isn’t without potential downsides. Risks include failing to clear the transferred amount before the promotional period ends — which can result in a sharply higher interest rate — as well as lesser-known pitfalls such as a temporary spike in credit utilization that could impact future credit approvals.

Using Low-Interest Credit Cards to Reduce Student Loan Debt: Planning & Process

A balance transfer can be a helpful tool, but it’s not something you should jump into without careful thought. Before moving any portion of your student loan balance to a new or existing credit card, you need to evaluate whether this method fits your financial situation. If you decide it does, the next step is learning how to manage the process, avoid unnecessary costs, use the balance transfer option responsibly, and compare the best available cards.

1. Assess Whether You’re a Suitable Candidate for a Balance Transfer

Start by determining if you’re even in the right financial position to apply for a credit card balance transfer. If the timing isn’t ideal, it might be wise to pause for a few months and work on strengthening your eligibility.

Your credit score is the biggest factor here. Most 0% APR or low-APR balance transfer offers are targeted at individuals with good to excellent credit. While each issuer sets its own standards, approval becomes unlikely when your FICO score drops below 700.

Check your credit report to see where you currently stand. If your score is lower than you’d like, commit to improving the weaker areas. This often takes time because the most influential credit score factors — payment history and credit utilization — don’t change overnight.

Credit utilization is especially important in this scenario. Traditional transfers from one credit card to another don’t hurt utilization since the existing balance simply moves from one card to another. But student loans don’t count as revolving credit, so shifting part of a student loan to a credit card does increase utilization. This can temporarily reduce your score and potentially limit your ability to qualify for new credit — which matters if you plan to take out a car loan or mortgage soon.

2. Never Transfer Federal Student Loans

Federal student loans should not be included in a credit card balance transfer. This strategy is only appropriate for private student loans.

Here’s why: federal loans come with benefits that private lenders can’t match — hardship protections, deferment and forbearance options, income-based repayment plans, and eligibility for government programs such as pandemic-related payment pauses. Many federal loans also offer forgiveness after 10 to 20 years of payments.

These advantages are significant and can save borrowers from severe financial strain. Once you use a balance transfer on a federal loan, you lose these protections permanently and replace them with a far less flexible type of debt.

3. Focus on Loans With the Highest Interest Rates

Paying off the loans that charge the most interest is one of the easiest ways to reduce the lifetime cost of your student debt. It also helps you pay off your loans faster because more of your payment goes toward the principal.

For a balance transfer, your ideal target is a smaller student loan with a high interest rate — one that fits comfortably within the credit limit you expect to receive on your balance transfer card. Just remember that you won’t know your exact credit line until your application is approved.

4. Confirm That Your Loan Servicer Allows Balance Transfer Payments

Before applying for any card, verify that your student loan servicer accepts lump-sum payments made via balance transfer. Most do, but you don’t want to discover exceptions at the last minute.

Do the same with your credit card issuer. While many major issuers allow student loan transfers, it’s still worth confirming the details — especially how the transfer will be executed. Some issuers directly pay the servicer, while others might need to issue you a check.

If your card issuer insists on cutting a check, make sure the issuer classifies it as a balance transfer, not a cash advance, which comes with higher fees and almost never qualifies for promotional APRs.

5. Decide How Much of Your Loan to Transfer

The number one rule of balance transfers is: never transfer more than you can pay off within the promotional APR period. Multiple small transfers are far safer than one large transfer that ends up costing more in interest.

The best loan to transfer is one that:

• Has a high interest rate
• Has a relatively small balance
• Can be fully paid off before the promo period ends

Fully paying off a loan this way offers four benefits:

1. You eliminate the entire loan without paying additional interest.
2. You get a motivational boost from wiping out a full balance.
3. You free up more money to apply toward your remaining loans.
4. Your credit score may improve, increasing your chances of receiving more generous balance transfer offers in the future.

6. Compare Balance Transfer Offers and Understand the True Cost

When reviewing balance transfer cards, evaluate the main factors that affect the overall cost and the amount you can safely transfer:

• Promotional APR

Some cards offer 0% APR for a limited period to new customers. If you qualify, that’s ideal. Low APR offers (like 1% to 10%) are more common for existing cardholders. Generally, a transfer is only worthwhile if you can reduce your interest rate substantially — usually by at least four percentage points.

• Promotional Period Length

The promotional window is crucial. If you fail to pay the balance before it ends, you may owe interest on the remaining amount — or worse, on the entire transferred balance retroactively. Aim for promotional periods of 12 to 18 months, or longer if possible.

• Balance Transfer Fees

These fees typically range from 3% to 5% of the transferred amount. While they may seem small, they can significantly increase the true cost. Before moving forward, calculate whether the fee exceeds what you would have paid in interest if you kept the loan as-is.

7. Don’t Assume You Can Transfer the Remaining Balance Later

While successfully paying off a transferred balance can improve your credit score, you shouldn’t rely on being approved for another balance transfer card once the promotional period ends. There’s no guarantee that future offers will be available — or that you’ll qualify even if they are.

Although there’s a good chance you’ll receive more offers, the risk of being declined and then getting stuck with high credit card interest on the leftover balance is too significant to ignore. Always plan to pay off the full amount before the promotional period expires.

About the author — Rashika Editor & Blogger, GlobalFinMate

Editor & Finance Blogger at GlobalFinMate, creating simple and accurate guides on budgeting and personal finance.