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Money Fix: New credit cards offer extra cash back to pay off student loans

New credit cards from Sallie Mae might appeal

New credit cards from Sallie Mae might appeal to college students and recent grads because cash back rewards can be applied to their student loans. Credit: Getty Images / Andersen Ross Photography Inc.

Sallie Mae, the grand poo-bah of student loans, entered the credit card world this fall with three cash back reward cards, Ignite, Accelerate and Evolve, targeted to college students and recent grads.

What’s got everybody talking is the Accelerate card. You earn 1.25% cash back on every purchase and get a 25% bonus on cash back rewards when used to help pay down any federal or private student loan.

There are questions. Are these cards worth signing up for? How do they stack up against other reward cards? Or should consumers steer clear?

Let the debate begin.

Compare, compare, compare

Sara Rathner, a credit expert at NerdWallet, compares the Sallie Mae cards to the competition.

The Ignite card earns 1% cash back, plus a 25% bonus on your cash back rewards after making six consecutive on-time payments, for an effective 1.25% cash back rate after the first six months. As an alternative, the Journey® Student Credit Card from Capital One offers 1% cash back, and 1.25% back whenever you pay your bill on time, so there’s no six-month wait.

The Accelerate incentivizes consumers to pay down their student loans. The card earns 1.25% cash back. Card holders get a 25% bonus on their cash back rewards that are used to pay down federal or private student loans, for an effective cash back rate of 1.56%. 

The Citi Double Cash offers 2% cash back on all purchases, and you can still apply any earned cash back as an extra payment toward the principal of your loans.

The Evolve offers 1.25% cash back, plus a 25% bonus on your top two purchase categories each month, for an effective cash back rate of 1.56%. Consumers seeking a card that rewards them more where they spend the most can also consider the U.S. Bank Cash+ Visa Signature card.

If you qualify, it offers 5% cash back on your first $2,000 in combined eligible net purchases each quarter on two categories you choose, 2% cash back on one everyday category, like gas stations or grocery stores, and 1% cash back on all other eligible net purchases. There’s also a $150 sign-up bonus after you spend $500 in the first 90 days. 

Her bottom line, “No credit card will make your loans magically disappear. For one thing, charging more than you can afford will make it harder to afford monthly debt payments. For another, a small percent of cash back applied to the loan principal may not make a huge dent in a five- or six-figure loan. You may get a higher cash back rate elsewhere. When it comes to credit cards, it can literally pay to shop around.”

The pros

“The key advantage of the Sallie Mae cash back credit cards is the ability to have the cash back rewards automatically applied to your student loans. For some people, the convenience of this streamlined automation is important,” says Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.

The cards also have beneficial features, such as cellphone insurance and free access to your FICO scores.

“The real incentive of the Accelerate card is more psychological than financial. The perks for paying down student loans might motivate cardholders to focus more on that task,” says Joshua Zimmelman, president of Westwood Tax & Consulting in Rockville Centre.

The cons

There are some with strong opinions that these cards are a no-go. Larry Duffany, a financial coach with Raising Hope in Thomaston, Connecticut, says, “Sallie Mae is already notorious for how poorly they manage student loan payments and the early payoff options of public-service forgiveness. What they have now done is launch a new line of debt that will further ensnare the unsuspecting borrower.”

He calls the cards a “gimmick.” “Students or recent grads have to go further in debt to gain a microscopic benefit towards their student loan debt. The truth is students and recent grads should be avoiding any further debt like the plague and pay on the loans directly.”

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