Paying Off Credit Card Debt With Help From Student Loan Forgiveness

I was a senior in high school and preparing to attend the University of Texas at Austin, when I received my “award letter” from the FAFSA with the terms of my direct unsubsidized student loan. I remember thinking, “That sure doesn’t look like an award.”

Over the past two decades, tuition and fees at public universities have increased by 211%. And every year, 30-40% of all undergraduate students take out federal student loans. I went there accepting the fact that I had to rely on student loans.

I had a lot of in-state tuition at UT, but in four years it had gone up almost 10%. I graduated in 2020 with about $37,000 in federal student debt, about 30% more than the average undergraduate borrower. Without the scholarship I received from the local Rotary club and the scholarship I won to study abroad during my senior year, my bill would have been much higher.

Then I added another layer of debt with my first credit card. Turns out that’s not unusual. A study by Sallie Mae found that the average college student’s credit card debt in 2019 was $1,183, or 31% more than in 2016 when I started college.

Here’s how I got into debt and how I got out of it.

How I Got Credit Card Debt

My 18 year old self didn’t quite understand how a credit card was supposed to work. I wanted to live like a college student – not like the kind who eats microwave noodles every night. This eventually got me in trouble, financially. I saw my credit card as an opportunity to travel as much as I wanted, while working at a minimum-wage newspaper that (spoiler alert) didn’t cover my credit card bill each month.

I knew what I was doing was irresponsible and it would catch up with me. Still, I spent summers between semesters traveling around Europe and Southeast Asia — and, you guessed it, throwing every purchase on my credit card.

At the time, I had a credit card in my wallet, the Discover it® Cash Back card. As soon as I left for college, my parents encouraged me to get a credit card for all the right reasons. They wanted me to build credit – and they had the right idea. How could they know that I would end up globe-trotting, thanks to my credit card?

After college, I entered the workforce with a huge amount of student loans and credit card debt. Oh, and it was May 2020: COVID-19 was disrupting everything. My credit card debt was the last thing on my mind.

Student Loan Debt Became My Main Concern

With persistent student loan debt, my card debt went on the back burner.

In March 2020, the federal government announced the CARES Act (Coronavirus Aid, Relief and Economic Security Act), which suspended payments on federal student loans until September 30, 2020. I was six weeks away from getting my my bachelor’s degree and a $37,000 student loan bill.

We didn’t even get to September 30 before the student loan relief measure was extended until December 31, 2020, in early August, and then again until January 2021. When President Biden took office in January 2021, it extended the student loan relief measure with no end date.

With the federal postponement in place due to the COVID-19 pandemic, I started thinking about ways to pay off the credit card debt I had accumulated. For almost four years, I had been making payments that barely exceeded the minimum amount due. I ended up with about $4,500 accumulated on my Discover card. To make matters worse, I was facing an exorbitant interest rate of 24.99%.

I started to get frustrated with how little money I could afford each month and the compound interest that kept erasing my progress. I felt stuck. I wanted to put my credit card debt aside before I even considered tackling my student loan debt. But I wasn’t sure exactly how that would be possible, once the federal adjournment expired.

How I use a balance transfer to pay off my card debt

Instead of drowning in guesswork, I started looking into debt consolidation options and decided that a balance transfer was probably the best option for me. I knew my interest payments were going to eat me up unless I could essentially pay my balance in full, which I wasn’t quite ready to do.

I decided to go with the Capital One VentureOne Rewards credit card. Three perks are where I was financially: the $0 annual fee, the flat rewards structure, and the introductory offer of 0% APR on balance transfers and purchases for 15 months. I needed a solid balance transfer offer, and this card also had a nice sign-up bonus: 20,000 miles after spending $500 in the first three months.

Yes, I was intrigued by VentureOne’s hassle-free travel benefits, even though I wasn’t looking for a travel credit card. As you can guess, since that’s how I got into debt, I love to travel. The VentureOne offers 5X miles on hotels and rental cars booked through Capital One Travel and 1.25X miles on all other purchases — and it works with my long-term goals.

I applied for the Capital One VentureOne online and was quickly approved. Once I received my card, I initiated my balance transfer with Discover by calling customer service. My balance transfer request was approved and within a week my balance was transferred to my Capital One account. You can easily request a balance transfer online or through Discover’s mobile app, but since I had some lingering questions, I decided to do it over the phone.

I now end up with a balance of $0 on my Discover card and a balance of $4,500 on my Capital One card. Remember that a 3% ($135) balance transfer fee applies to my balance of $4,500.

With student loan forgiveness, I can prioritize card debt

I knew that over the next 15 months, I would have to make monthly payments well above the minimum due in order to pay off my balance before the 0% APR offer ended. I started by making two monthly payments of $150. My due date falls on the 27th of every month, so I’ve been able to make payments every two weeks in sync with my work paydays.

And then last month, President Biden announced a sweeping student loan forgiveness measure that erases up to $10,000 in federal student loan forgiveness for individual borrowers who earn less than $125,000 a year (up to $20,000 for borrowers who received a Federal Pell Grant). I felt a deep relief.

It’s not even necessarily the dollar amount that makes the difference, it’s the fact that when it comes time to pay off that student loan debt, my monthly payment will be cut in half. People with undergraduate loans only have to make payments equivalent to 5% of their Discretionary Income. Before that, I lived in fear that the exorbitant monthly payments would completely disrupt any card debt repayment plan.

Now I can focus on paying off my credit card debt and even increase my monthly payments, knowing that my student loan payments won’t break my bank next year.

How do you know which debt to prioritize?

In the end, I had to shift my financial priorities based on what was costing me the most. Since graduating in a “Covid economy”, my student loan debt has never been in the forefront of my mind because I knew it was costing me nothing at that exact moment. In contrast, my increasingly high-interest credit card debt was digging a hole in my pocket.

Either way, it’s in your best interest to figure out which debt is costing you the most over the longest period of time. Look at the interest rates you’re paying and figure out what they’re really costing you. If you’re in a situation similar to mine, the interest rates on your credit cards could exceed your student loan interest rate a dozen times over.

The bottom line

I am extremely relieved at the attention the Biden administration is giving to nearly $1.75 trillion in outstanding student loan debt. Debt cancellation will allow people like me to prioritize other debts that are proving harder to get under control. With the right plan — and, potentially, the right balance transfer offer — we graduates can get our financial lives back on track.

I’d be lying if I said I wasn’t uncomfortable with my student debt, but I’m not ashamed. That’s what I needed to do to get into college. Now my credit card debt is a different story.

I plan to pay off my credit card debt by March 2023, a few months before my 0% APR offer ends. When I do, maybe I’ll update my credit card and start playing the points game myself a bit. But I will not have the right to make mistakes, because I will work until then to settle my student debt.

About Joan Ferguson

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