Applying Credit-Card Rewards to Student Loans

I recently discussed the question of whether it’s better to repay credit-card debt or student-loan debt. Many New York bankruptcy cases feature both types of debt, so similarly situated debtors might want to know which path is best. However, there is a third path open to debtors who are at least on top of their credit-card bills: Applying credit-card rewards to their student loans. (Note that applying rewards is not the same as shifting balances, which in the bankruptcy context indicates a preference payment that the trustee might try to avoid.)

Here’s how it works. Most new credit-card offers include some kind of bonus to their typical rewards programs, often bonus points that can be used for other purchases and sometimes cash. Some cards, though, allow debtors to apply their points to their student-loan payments. The primary catch is that the bank will usually condition the new offer on the purchaser’s spending a certain amount of money in a certain amount of time, e.g. $3,000 in 90 days. This can be a lot, but if done right, debtors can repay some of their student loans while making normal purchases. Another trick to making this opportunity work is combining expenses with a trustworthy (romantic) partner who also has student loans.

The first step to applying credit-card rewards to student loans is ensuring your student-loan servicer accepts checks from third parties. Many of them do, but some do not. If they don’t accept the checks, then the best alternative is taking the cash reward from the bank and sending it to the servicer directly. Otherwise, carefully follow the directions the servicer gives you, including, possibly, having the check sent to the right facility and including your account number.

Second, make sure the payment applies to the student-loan’s principal. Many lenders simply apply extra payments to future payments, which mostly defeats the purpose of the rewards offer.

Third—and this is most important—don’t spend more money just to receive some in rewards. At the top, I noted that debtors need to be current on their credit-card expenses to begin with, but rewards offers tend to ask for fairly significant expenditures in a short amount of time, something like $1,000 per month. If rent or mortgage payments can be put on these, it may work, especially given how expensive New York is, but many people simply don’t spend that kind of money regularly. If you’re already going to do so, like paying for a vacation or wedding, then it’s worth considering, but if the expenses aren’t there, just don’t do it. Compromising your frugality defeats the purpose of trying to repay debts.

The fourth step is to repay all the charges and close the account (if you won’t use it). There’s no reason to have more credit-card lines than you need, and many cards with large rewards bonuses charge hefty annual fees that are waived the first year.

Using rewards to repay debts can give debtors quite a boost, but if that option is unavailable to you, then talking to an experienced New York bankruptcy lawyer is your next best option. A chapter 7 bankruptcy can free income spent on credit-card debt for student-loan payments.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/
https://plus.google.com/118376380896545513115

Recent Posts

See a New York Bankruptcy Lawyer Before Paying a 25-Year Car Loan

The auto Web site Jalopnik published an investigative report on the predatory behavior of Credit Acceptance Corporation, a subprime auto-loan company with a poor reputation. The story focuses on debtors who signed auto-loan agreements as far back as the 1990s but are still being hounded by the lender decades later and after wage garnishments. The

Read More »

Who Were Chapter 7 New York Bankruptcy Debtors in 2017?

Last year I asked who chapter 7 bankruptcy debtors were, and just a few weeks ago, I discovered that Brooklyn bankruptcy filings were up in 2017 over 2016. Because the federal judiciary’s Bankruptcy Abuse Prevention and Consumer Protection report (BAPCPA report) came out recently, it’s fair to ask how 2017 compared to 2016 and whether

Read More »

Student-Loan Bankruptcy Alternative Rejects 99 Percent of Debtors

One of the more controversial alternatives to New York bankruptcy for student-loan debtors is Public Service Loan Forgiveness (PSLF). I say “controversial” because many Washington politicians and policy types think it’s much too generous to debtors and should be pared back. PSLF is similar to other government income-derived repayment (IDR) programs, but, well, it is

Read More »

When Exemptions Can’t Protect Everything

For about a decade, New York bankruptcy debtors have been able to choose which set of exemptions to use to protect their assets, federal or state. For most debtors, notably those who aren’t homeowners, the federal exemptions are the best option because they provide a larger cash exemption. The state exemptions, by contrast, are better

Read More »

What Is an Escrow Account and How Can It Affect My Bankruptcy?

“Escrow” is a term that sometimes appears in New York bankruptcy cases. It’s most familiar to homeowners, and its origin is clearly medieval. According to Dictionary.com “escrow” is similar to words like “scrap” or “scroll.” It’s only in the last two hundred years, though, that the term evolved to how it’s used today: a deposit

Read More »