Pay off credit card debt with the help of student loan forgiveness

I was a high school grad preparing to attend the University of Texas at Austin when I received my “Letter of Grant” from FAFSA with the terms of my direct, unsubsidized student loan. I remember thinking, “This definitely doesn’t feel like an award.”

Over the past two decades, federal tuition and fees at public universities have increased by 211 percent. And every year, 30 to 40 percent of all undergraduate students take out federal student loans. I accepted the fact that I was dependent on student loans.

I had a good offer of state tuition at UT, but in four years it had increased by almost 10 percent. I graduated in 2020 with about $37,000 in federal student loan debt, about 30 percent more than the average undergraduate borrower. Without the scholarship I received from the local Rotary Club and the scholarship I earned studying abroad my senior year, my bill would have been much higher.

Then I added another layer of debt with my first credit card. It turns out this is not uncommon. A study by Sallie Mae found that a college student’s credit card debt averaged $1,183 in 2019 — 31 percent up from 2016, when I entered college.

This is how I got into debt and how do I get out of it.

How I got into 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 someone who eats microwaved pasta every night. That ended up getting me into financial trouble. I saw my credit card as an opportunity to travel as much as I wanted while working a minimum-wage newspaper job that (spoiler alert) didn’t pay my credit card bill every month.

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

At that time I had a credit card in my wallet, the Discover it® Cash Back card. As soon as I went to college, my parents encouraged me to get a credit card for all the right reasons. They wanted me to build up loans – and they had the right idea. How did they know that I would be taking a world tour thanks to my credit card?

After college, I entered the job market with an outrageous amount of student loans and credit card debt. Oh, and it was May 2020: COVID-19 messed everything up. My credit card debt was the last thing on my mind.

Student loan debt became my main concern

With student loan debt lingering, my card debt took a backseat.

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

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

With the federal deferral due to the COVID-19 pandemic, I began thinking about how to pay off my accumulated credit card debt. For almost four years, I had made payments that barely exceeded the minimum amount due. I ended up finding myself with about $4,500 on my Discover card. To make matters worse, I was faced with a sky-high interest rate of 24.99 percent.

I began to get frustrated with the small amount I was able to pay each month and the compound interest that was killing my progress. I felt stuck. I wanted to get my credit card debt under control before I even thought about tackling my student loan debt. But I wasn’t sure how exactly that would be possible once the federal moratorium expired.

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

Instead of bogging down in “what ifs” questions, I started looking at debt consolidation options and decided that a balance transfer was probably the best option for me. I knew my interest payments would eat me up unless I could essentially pay back my balance in full, which I wasn’t quite ready to do.

I chose the Capital One VentureOne Rewards credit card. Three perks suit my financial situation: the $0 annual fee, the flat premium structure, and the introductory offer of 0 percent APR on both balance transfers and purchases for 15 months. I needed a strong balance transfer offer, and this card also happened to offer a nice sign-up bonus: 20,000 miles after spending $500 within the first three months.

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

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

I now found myself with a $0 balance on my Discover card and a $4,500 balance on my Capital One card. Keep in mind that there is a 3 percent ($135) balance transfer fee on my $4,500 balance.

With student loan forgiveness, I can prioritize card debt

I knew I would have to make monthly payments well in excess of the minimum due for the next 15 months to pay off my balance before the 0 percent APR offer ended. I started with two monthly payments of $150. My due date falls on the 27th of every month, allowing me to make bi-weekly payments in sync with my job’s paydays.

And then last month President Biden announced a sweeping student loan forgiveness measure that will erase federal student loan forgiveness of up to $10,000 for individual borrowers earning less than $125,000 annually (up to $20,000 dollars for borrowers who received a state Pell grant). I felt a deep relief.

It’s not even necessarily the dollar amount that makes a difference, it’s the fact that when the time comes to pay off that student loan debt, my monthly payments will be cut in half. Individuals with undergraduate loans only have to make payments equal to 5 percent of their discretionary income. Before that, I lived in fear that the sky-high monthly payments would completely frustrate any plan to pay off card debt.

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

How do you know which debts to prioritize?

At the end of the day, I had to shift my financial priorities based on what was costing me the most. Ever since graduating in a Covid Economy, my student loan debt has never been a priority because I knew it wasn’t costing me anything in that moment. My increasingly high-interest credit card debt, on the other hand, was digging a hole in my pocket.

In any scenario, it is in your best interest to consider which debts are costing you the most for the longest time. Look at the interest rates you are paying and calculate what they are really costing you. If you’re in a situation similar to mine, the interest rates on your credit cards could be a dozen times higher than your student loan rate.

The final result

I am greatly relieved by the attention the Biden administration is giving to our nation’s nearly $1.75 trillion in outstanding student loan debt. Debt relief will allow people like me to prioritize other debts that are proving more difficult to control. With the right plan — and possibly 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 loan debt, but I’m not ashamed. It’s what I had to do to get me through college. Well, 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 percent APR offer ends. If I do that, I might even upgrade my credit card and start playing the points game a bit myself. But I will have no room for error because until then I will be working to tackle my student loan debt.

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