Personal Finance Tip – Should I Use Student Loans to Pay Off Debt?

So you’re attending college to try to build your career, but you find that your debts are distracting you from your studies. You might consider using your student loans to pay for your debt… but is this really a good idea?

When you sign a student loan agreement, you are telling your lender that you will use the loan to pay for expenses directly related to your education. This can include living expenses, and personal debts are arguably a part of these expenses. Your lender would likely not be pleased to learn that you used your student loans to make credit card payments, but if you incurred credit card debt as a result of being in school – say, you had to reduce your work hours to attend classes – it would be possible to argue that your debts were related to your education.

The problem comes when you finish school and you have to begin making payments on your student loans. Although you may have saved credit card finance charges by paying your debts with your student loans, your loans have been quietly accruing interest while you were in school. By the time you have to begin making student loan payments, you will have incurred more in interest charges than if you had simply paid off your debts through part time or full time income.

If possible, it’s a good idea to avoid using student loans to pay off debt. You’ll end up paying much more in the long run – the debts you could have paid off in a year or two will hang around for a decade or more, building interest the entire time.

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