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I'm currently back in school, full-time, for an MBA (20 month program). I don't need to worry about tuition, but I still need to pay for living expenses out of pocket.

Should I rely on student loans, or a 0% credit card?

  1. Student Loans - I can get $10,000/semester in loans from the US Government, at a 6.8% interest rate, with a 1% origination fee. These loans are unsubsidized, so they are compounding while I'm in school.

  2. Credit Card - I have great credit, and I managed to secure about $20,000 in 0% credit cards that will last me 18 months, pretty much just long enough to get through school.

My thought is that the credit card loan is unsecured, is not accruing interest, and can be discharged in bankruptcy (worst case scenario). The student loans are accruing interest, will be with me for life, but are at least at a fixed rate.

I pay my rent and bills with my student loans, since I get cash directly from these loans. I only take the amount out in student loans that I absolutely need. Otherwise, I rely mostly on my credit cards.

I should net about $10,000 this summer from my internship, and I'm on track for full-time recruitment, which is on average about $100,000 salary with a $10,000 - $20,000 signing bonus. I would use this money to pay off the Credit Card before it starts accruing interest.

Do you guys foresee any potential problems with this strategy? I'm not sure if I'm working the system, or if I'm being stupid about something. If necessary, I could take more student loan money and pay off the credit card immediately.

(PS - please feel free to close if this is considered Personal Finance Advice. I will not be offended.)

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    What rate does the card have after a year?
    – JTP - Apologise to Monica ♦
    Mar 15, 2013 at 23:26
  • @JoeTaxpayer : good question! It should revert to 13% Variable after 18 months, which of course means whatever they feel like charging me.
    – MattMcA
    Mar 15, 2013 at 23:41
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    Some issues to consider: many 0% interest-rate offers come with conditions such as "the 0% balance must be created by paying off other cards (or created by charges to the card) within 2 months of issuance of card." In some cases, you get checks that you can use to pay schools, utility companies, and even taxes (or deposit into your own account), but the checks must be cashed (not just used) within the time limit specified. Also, some offers have 0% interest for the period specified but do have an upfront "service charge" of 2% to 5$% that gets tacked on. More....
    – Dilip Sarwate
    May 19, 2014 at 13:21
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    ... Continued... The service charge must be paid off in the first month (in fact, make sure your first monthly payment consists of the minimum payment specified on the statement plus this service charge, else that becomes a balance on which you pay interest.
    – Dilip Sarwate
    May 19, 2014 at 13:23

2 Answers 2

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If you are very sure, say 90%, that you'll pay the zero percent card off before paying interest, that would be my choice. Less certainty than that, I think the 6.8% over a longer term is less of a cash flow issue, and you can still pay it in full upon getting the job bonus.

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I would use student loans and avoid credit card debt if debt is your only option.

Here are the advantages I see:

  • Fixed interest rate
  • Flexible repayment options should you absolutely need it
  • Even though the loans are accruing interest in school, you shouldn't be required to make payments until you 6 months after leaving school.

Disadvantages:

  • Student loans are yours for life. Unless the law changes, even bankruptcy won't clear your student loans.
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