Let’s say you borrowed the average amount in student loans to pay for your college education. According to the nonprofit American Student Assistance, your total balance is probably in the neighborhood of $24,000. Eek! That’s a lot of money.

There’s a good chance you have multiple accounts, with all that implies multiple student loan servicers, multiple due dates, multiple interest rates … again, eek! 

Then one day, you get a cash-advance offer in the mail from one of your credit cards. Zero-percent interest for 12 months! And the max amount is just enough to completely pay off one of your student loan accounts. What’s the downside, you might ask? Actually, transforming one type of debt into another won’t improve your credit score and may mean giving up valuable tax benefits.

Transforming debt and your credit score

On the surface, lowering the interest rate on your student loans may seem like a no-brainer. However, while student loans may help you build credit, their effect on your credit may mostly be a result of your payment history. As long as you make your monthly payment on time, you are probably improving your credit score.

Payment history is certainly important when it comes to your credit cards. But another factor in credit-scoring models is the amount owed compared to the amount you are authorized to borrow. Transferring your student debt onto a credit card may not change the total amount of your debt. However, it may have a negative impact on your credit-utilization ratio and lower your credit score. That can make qualifying for the best credit cards or best mortgage rates difficult going forward.

Transforming debt and student loan tax benefits

According to the IRS, a student loan interest deduction can reduce the amount of your income subject to tax by up to $2,500. What’s more, this deduction is what’s known as an “above the line” deduction, also sometimes called an adjustment to income. That means you can take the deduction even if you take the standard deduction instead of itemizing.

Interest on credit cards, on the other hand, can’t be deducted from your taxes at all. Student debt is one of the few types of loans the IRS will help you repay. So why would you give up that benefit? The interest rate on federal direct loans is also fairly low. It’s just not worth gambling that you can pay the balance on a cash advance in full for such a small reduction in interest rate.

Keep your student loans where they are

On the surface, transforming your student loan debt into credit card debt may seem like a way to ease your repayment burden. However, if you’re struggling to make your monthly student loan payment, your servicer may be able to change your monthly payment to something that is more affordable. Communicating with your servicer is a much better plan and may help you maintain or raise your credit score.