Author Topic: 0% Interest Student Loan Balance Transfer  (Read 5228 times)

KittyFooFoo

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0% Interest Student Loan Balance Transfer
« on: August 27, 2014, 02:16:14 PM »
Hello all,

My wife and I are in the process of paying off about $180k of student loans, split between 6.65% ($70,986.56) and 7.75% ($107,430).  We started paying this May.  In our first four months, we'll have pumped just over $15k into the loans.  I've made some more detailed posts about our budget in the past, some brief details:

Our standard monthly payment is $3000, plus $5000 from a depcare FSA over the course of a year, plus any bonuses/side income we bring in over the course of the year.  So with our two jobs, we are on track to pump $40-50k into the loans per year.  Other assets: $20k in cash and $45k in retirement accounts.  We rent.

Now because we are banging SO much money into these loans for SO long, I am obsessed with any tricks and shortcuts to optimize the process.  My latest idea is this card:

http://www.nerdwallet.com/card-details/card-name/Chase-Slate-Elite

The card offers 15 months of 0% interest with absolutely 0 fees.  So, suppose I balance xferred $20,000 onto this card.  At $1500 monthly payments, the card balance would be paid off in 14 months, saving $970.44 in interest.  And if I wanted to be a real smartass, I could even invest the payments until payoff day, adding maybe $500-$1k of profit on average.

I guess the main problem is the risk of job loss.  If we fail to pay this $20k in 15 months, the remaining balance snaps to 13%, 18% or 23% APR, which would quickly devour potential interest savings and then some.

Thoughts?  Is this too much risk for too little gain?  Thank you.

gimp

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Re: 0% Interest Student Loan Balance Transfer
« Reply #1 on: August 27, 2014, 02:48:03 PM »
I'd do it, provided you have a margin of safety - eg, 75% of what you think you can pay without issue.

Cheddar Stacker

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Re: 0% Interest Student Loan Balance Transfer
« Reply #2 on: August 27, 2014, 02:58:34 PM »
I'm no legal expert, but I've heard people hear warn about using credit cards to payoff student loans. Not because of risk per se, but because you are turning what is typically federally protected, non-dischargeable debt into consumer debt that could be discharged in bankruptcy. I'm not sure how legal it is, or if a credit card company would actually be willing to do it.

All that said, I would do it if possible, but I wouldn't do the investing part of the strategy as it's too short-term to make it worthwhile. You not only have market risk, but any gains would be subject to short-term tax rates which are harsh in comparison to long-term rates.

I would put ALL of the $20K cash into the SL debt before I did anything else. Get a couple good credit cards (like these 0% ones) with a high limit to use as your EFund. Then hope you don't have an emergency. But, I would prefer getting rid of $1,550 annual interest ($20k*7.75%) when I don't have any emergencies while hoping I won't need to pay $1,000 in CC interest if I ever do have a real emergency.

bugbaby

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Re: 0% Interest Student Loan Balance Transfer
« Reply #3 on: August 27, 2014, 08:56:23 PM »
How about refinancing part of it (such as private or parent-cosigned loans) with Sofi?  They advertise as low as 4% rates.  Then pay off the high interest ones first.

Suit

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Re: 0% Interest Student Loan Balance Transfer
« Reply #4 on: August 27, 2014, 09:38:03 PM »
This may be a stupid question…wouldn't you have to pay your normal bill every month even if you did "pay" $20k by putting it on a card? Basically, would the loan company count it as pre-payments towards your monthly bills or a one time lump sum where you still owe your monthly amount?

KittyFooFoo

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Re: 0% Interest Student Loan Balance Transfer
« Reply #5 on: August 27, 2014, 10:23:35 PM »
How about refinancing part of it (such as private or parent-cosigned loans) with Sofi?  They advertise as low as 4% rates.  Then pay off the high interest ones first.

Definitely planning to do this, but first wife and I need to file a joint tax return.  We filed separately last year and her income alone will get rejected for refinance.

This may be a stupid question…wouldn't you have to pay your normal bill every month even if you did "pay" $20k by putting it on a card? Basically, would the loan company count it as pre-payments towards your monthly bills or a one time lump sum where you still owe your monthly amount?

Yes, we would have to pay the regular payment.  But, she is enrolled in Income Based Repayment, so her monthly payment is like $245.  These would be one-time payments on top of our monthly autopayment.

In other news, I called the loan servicer (Great Lakes) today to verify that they actually took CC payments.  The rep I spoke told me that yes, they could service credit card payments over the phone.  She went on to add that customers pay with credit cards frequently, that she was pretty sure that the CC companies treat these transactions as a purchase, not a balance transfer, and that customers claim they are racking up a huge amount of CC points via such purchases.

Is this bullshit?  I was completely convinced that it was NOT possible to cycle our loan payments through a card, and that the only way to pay off a large loan was through bank transfers, with no tricks.

Lis

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Re: 0% Interest Student Loan Balance Transfer
« Reply #6 on: August 28, 2014, 07:33:59 AM »
Out of curiosity, what student loan provider(s) do you have? With Sallie Mae, you can't pay directly with a credit card. I was thinking of getting a cash advance, depositing that money into my bank account, then transferring the balance to a 0% interest card (doing the math so that I'd pay it off in full before the interest kicks in). Currently, the only card I have that offers cash advance only advances $480, which is less than what I pay a month towards SL anyway. Am I missing something?

Lis

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Re: 0% Interest Student Loan Balance Transfer
« Reply #7 on: August 28, 2014, 08:07:56 AM »
Also, I know most users in this forum aren't concerned with credit scores, but as a newbie who will hopefully be purchasing a home in 3-5 years, I'm curious. My score is ~ 750 (according to Credit Karma)... how would doing something like this affect my score? I know opening two new cc accounts would lower it (my longest cc right now is only 3 years), but would only paying the minimum on 0% hurt me enough where it wouldn't be worth it?

KittyFooFoo

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Re: 0% Interest Student Loan Balance Transfer
« Reply #8 on: August 28, 2014, 08:43:38 AM »
Out of curiosity, what student loan provider(s) do you have? With Sallie Mae, you can't pay directly with a credit card. I was thinking of getting a cash advance, depositing that money into my bank account, then transferring the balance to a 0% interest card (doing the math so that I'd pay it off in full before the interest kicks in). Currently, the only card I have that offers cash advance only advances $480, which is less than what I pay a month towards SL anyway. Am I missing something?

The loan provider is Great Lakes.  They don't offer the option to pay with a CC online, but the rep claimed they will take CC payments over the phone.

Angie55

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Re: 0% Interest Student Loan Balance Transfer
« Reply #9 on: August 28, 2014, 09:06:40 AM »
I did this when we were in agressive payoff of my husband's 8.5% student loan. Luckily we made it through without job loss. Definitely plan a safety margin (i.e. plan to pay off 1-2 months early).


I didn't have a no fee BT but mine was 0% on purchases after a BT. So I did a $100 balance transfer. Then used chargesmart to payoff the rest (~2.5% fee). It counted as a purchase so I got the 1.5% cashback effectively lowering the overall cost.

What I did was pay just the minimum for the intro period. Then I placed the rest of the payment in a savings account. Paid it all off in a lump sum ~1 month before the due date. So I was also earning minimal interest on the balance.

Lis

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Re: 0% Interest Student Loan Balance Transfer
« Reply #10 on: August 28, 2014, 11:51:23 AM »
Hmm... just did the math. This is very doable for me once my loan reaches $6500, which is in a few months! I can save nearly $700 in interest (well, $900 in interest minus $195 in transfer fees)! I checked online too, and Sallie Mae (supposedly) accepts a one time payment on credit card.

Angie, thanks for sharing your story!

Ooh, now I'm excited...