How to Pay Off Student Credit Card Debt

Other than loans to fund academic study, student credit card debt is one of the major problems facing undergraduates. The availability of credit can make money seem easy to come by, but interest quickly builds on any unpaid balances.

This problem is further exacerbated by late payment charges. A US PIRG's 2008 Campus Credit Card Trap report showed that 15% of undergraduates had incurred a late settlement fee.

Student Credit Card Debt

According to a Sallie Mae report in April 2009 called "How undergraduate students use credit cards", 21% of undergraduates had revolving debt of between $3,000 and $7,000. The same body of research also revealed that over half of all undergraduates had four or more cards.

Debt Relief Programs

Unlike loans for course and tuition fees, personal debt accrued on a charge card is unsecured and can be eliminated with a debt relief program, such as a debt settlement program or Debt Management Plan (DMP). These seek to either improve affordability and/or write-off some of the principal (the amount owed).

Debt Management Plan

Although it doesn't result in a write-off of any of the principal, this debt relief program is normally the most appropriate way of paying-off student credit card debt. It is concerned with achieving greater affordability.

The first stage of a Debt Management Plan is a thorough analysis of the client's income and expenditure information. The objective of this is to identify areas where money can be saved and also to decide how much you can afford to offer to creditors without exacerbating financial hardship.

Rather than making several different payments, a single sum is sent to the intermediary (the debt management plan provider) and they disseminate the proceeds to creditors on a pro rata basis. This happens until the debt is fully cleared. Most creditors will be prepared to stop further charges and freeze interest payments.

Debt Settlement Program

A negotiation process is undertaken with creditors and collection agencies to reduce the principal by up to 50%. This means that any remaining student credit card debt can then be re-paid over a period of 12 to 36 months. The actual write-off will only take place following the final payment.

Whilst the intermediary will typically charge a fee equivalent to 15% of any monthly premium, this will all be calculated before proceeding. Avoid any debt relief program provider that front-load fees (takes management charges up-front). This could potentially create problems later on.

Selecting the right debt relief program is fundamentally important if student credit card debt is to be cleared quickly and efficiently. Speak to a non-profit debt counseling service before proceeding.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.