Students turn to TikTok, credit cards in rush to pay down debt
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The rush to pay off student debt before next week’s 7.1 per cent increase has led to many looking for alternative ways to settle their debt, including a loophole circulating on TikTok that allowed rewards points to be earned on the repayments.
Numerous videos posted on the popular social media platform last week promoted a “hack” where full points could be earned when paying down HECS/HELP debt with a rewards credit card, despite banks’ terms and conditions generally saying no rewards points are earned when making payments to government-related agencies.
This involved making the payment with the Beem payment app so the organisation receiving the payment – the Tax Office – is not identified by the card company, allowing the rewards points to be paid. Beem has since closed the loophole, with payments by credit card no longer allowed.
Paying off student debt with a credit card could lead to a bigger debt problem. Credit: iStock
The popularity of the videos – with some racking up tens of thousands of views – indicates many are seeking different ways to pay off their debt before it is indexed at midnight on Wednesday, increasing by 7.1 per cent due to the current high rate of inflation. Student debt is managed by the Australian Tax Office.
However, some with student debts may be making hasty decisions that could leave them worse off than if they had allowed the debt to grow by the indexation rate.
Those who pay their student debt by credit or debit card will be up for a “card payment fee” which can, depending on the card, be as high as almost 2 per cent. That is almost $400 on a $20,000 payment of student debt.
Sally Tindall, the research director at RateCity questions whether credit cards should be used to repay sizeable student debts unless the card user has a plan to pay off the card debt itself.
That is particularly so for rewards cards, which have interest rates on debt that are not cleared in time – often slugging users with interest rates of about 20 per cent. The cards also come with annual fees that average about $200.
“Those paying off their student debt with a credit card before it’s indexed by 7.1 per cent on June 1 are dancing with the devil, unless they can clear the debt within their interest-free days,” Tindall says.
A $25,000 debt on the typical rewards card – where only the typical minimum monthly repayment is made – takes more than 36 years to clear, figures provided by RateCity show. The cardholder would pay more than $46,500 in interest over that time.
If the same person paid $1,000 a month, it would take two years and eight months to clear the debt in full, and the card user would pay $6399 in interest. This assumes the person has 55 days interest-free on their card.
The easiest way to check the balance of your student loan is to view your account in ATO Online services, which can be accessed through myGov.
The ATO advises that those paying off the debt should allow four business days to be sure the payment is cleared in time.
A spokesperson for the ATO told this masthead as the four days ended on Thursday, the “ATO cannot guarantee that payments made between now and midnight of May 31 will be received by the ATO in time to avoid indexation”.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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