Author Topic: Transfer student loans to 0% credit card?  (Read 8398 times)

jmadlena

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Seattle, WA
Transfer student loans to 0% credit card?
« on: February 04, 2016, 07:14:17 PM »
Hi fellow Mustachians,

In doing research to find a good 0% interest balance transfer card for my brother, I found an opportunity that may be a good idea for me, and I'd like your help evaluating it.

When reading the NerdWallet article Best Balance Transfer and 0% Interest Credit Cards of 2016 (http://www.nerdwallet.com/blog/top-credit-cards/nerdwallets-best-balance-transfer-credit-cards/), I read about the Citi Simplicity card, which offers a 21 month 0% interest period. The interesting thing is that this card allows you to transfer student loans. I have one remaining loan ($70,000 at 6.5%).

I have been doing lots of number crunching and should be able to pay it off by the end of 2017 at the latest with my current loan. However, this might help me get there a little sooner and save a whole lot of interest.

The two catches I see:

  • It has a 21 month no-interest period, so if I couldn't pay it off completely by the end I would pay between 13-23% interest on the remainder - most likely I would have a max of $10,000 left, and towards the end of the loan I should be putting $5,000 a month towards the loan, I would pay less than $100 in interest
  • There is a 3% balance transfer fee

So essentially I would be exchanging a 6.5% compounding interest loan for a 0% interest loan with a one-time fee of $2,100. According to my current plan, I would pay about $5,100 in interest, so that's a savings of $3,000.

If I were to do it I would probably wait a few months (until I get my next scheduled raise in May) to do it. Which should give me ample time to pay it off.

Any thoughts on this plan? Am I missing anything obvious and fatal? Thanks for your time!

Fuzz

  • Bristles
  • ***
  • Posts: 410
Re: Transfer student loans to 0% credit card?
« Reply #1 on: February 04, 2016, 07:53:42 PM »
I'd be shocked if you had a $70k credit card limit and had student loans. But in theory it's a good plan. I did it for a smaller balance, just under 10k, and it was great.

jmadlena

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Seattle, WA
Re: Transfer student loans to 0% credit card?
« Reply #2 on: February 04, 2016, 07:56:17 PM »
I'd be shocked if you had a $70k credit card limit and had student loans. But in theory it's a good plan. I did it for a smaller balance, just under 10k, and it was great.

That is a fantastic point that I hadn't even considered (don't know why). There is a very real chance they wouldn't approve that much. In that case waiting (many) several months would take care of it.

Thanks for the reminder!

marty998

  • Walrus Stache
  • *******
  • Posts: 7150
  • Location: Sydney, Oz
Re: Transfer student loans to 0% credit card?
« Reply #3 on: February 05, 2016, 04:27:23 AM »
that's not how many balance transfer cards work.. if you haven't paid it all off completely by the time the interest free period ends, you may be charged the interest on the average balance for the full 21 months at the very high rate...

jmadlena

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Seattle, WA
Re: Transfer student loans to 0% credit card?
« Reply #4 on: February 05, 2016, 09:13:21 AM »
that's not how many balance transfer cards work.. if you haven't paid it all off completely by the time the interest free period ends, you may be charged the interest on the average balance for the full 21 months at the very high rate...

That's what I was expecting as well, but the terms and conditions for this card state: "After the introductory period ends, the standard purchase APR will be applied to unpaid introductory balances, new purchases and new balance transfers."

If I'm interpreting that right (which I may not be), interest will only be applied to any unpaid balances. The question is does that include the original balance transfer? I should probably call and ask.

greaper007

  • Handlebar Stache
  • *****
  • Posts: 1129
Re: Transfer student loans to 0% credit card?
« Reply #5 on: February 05, 2016, 09:31:08 AM »
Here's an evil/civil disobedient thought I've always had.   What if you were able to transfer all your student loans to credit cards, and then declare bankruptcy?    You could consider it morally wrong, or if a big group of people did it you could consider it a mass act of civil disobedience aimed at the college industrial complex.

Thoughts?

katsiki

  • Handlebar Stache
  • *****
  • Posts: 1722
  • Age: 40
  • Location: La.
Re: Transfer student loans to 0% credit card?
« Reply #6 on: February 05, 2016, 09:41:09 AM »
Interest should only apply to the remaining balance.

therethere

  • Pencil Stache
  • ****
  • Posts: 855
Re: Transfer student loans to 0% credit card?
« Reply #7 on: February 05, 2016, 09:52:49 AM »
I would be hesitant to do all  70k at once. What happens if you have an emergency or job loss that delays payment? The savings of your student loan interest rate can be wiped out pretty quickly with a high interest for a month or two. Also, most BT's can be used for student loans since they usually allow you to cut a check to yourself to deposit in your own account and use as you see fit.

Also, balance transfers almost always have a 2-3% fee nowadays. That is taking away some of your savings right there. If its a rewards card and it includes purchases in the 0% interest deal you can use ChargeSmart (2.87% fee) get the rewards (1-2% back depending) and effectively lower the balance transfer fee. I did this on a few loans but only 10k or less at a time to reduce risk.  But it was also at a time when there was a cap of $75 on the fee, my student loan was 8.6% and above the tax deduction line, and savings accounts paid 5% (so I could "pay" the extra in there and pay off the BT in a lump sum).

I highly recommend making a spreadsheet to do the math. This will let you see how much you are actually saving on this and really think about whether its worth the risk.



bobechs

  • Handlebar Stache
  • *****
  • Posts: 1068
Re: Transfer student loans to 0% credit card?
« Reply #8 on: February 05, 2016, 10:47:46 AM »
Here's an evil/civil disobedient thought I've always had.   What if you were able to transfer all your student loans to credit cards, and then declare bankruptcy?    You could consider it morally wrong, or if a big group of people did it you could consider it a mass act of civil disobedience aimed at the college industrial complex.

Thoughts?

Evil or not, political or not, wrong or not, it won't work.

Student loans remain non-dischargable in bankruptcy even if the exact vehicle by which they are paid changes. 

And it's not at all hard to find that out:

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=balance+transfer+student+loan+bankruptcy

So keep thinking, but think better next time.

therethere

  • Pencil Stache
  • ****
  • Posts: 855
Re: Transfer student loans to 0% credit card?
« Reply #9 on: February 05, 2016, 11:38:38 AM »
Okay I'm bored. I made the spreadsheet for you. For all purposes let's assume you could apply for an unlimited amount of cards to total a 73000 (need the credit limit to cover any balance transfer fees and the top end of your income falls in the 25% tax bracket.

Assuming you could payoff your 70k@6.5% loan off by YE 2017 in equal payments of 3385/month. In total  you'd pay 4441 in interest. With an expected refund of 1110 on your tax return from student loan interest deduction. With a 3% BT fee, if you moved all your loans to CC's you would pay 2100 in fees at the start.

So net after 21 months you'd save $1230 or $58/month.

Risks:
Falling off track and paying 23% interest on the BT balance at the end of the 21 month period. Job loss, expensive car repairs not saved for, forced move, lots of stuff could cause this.
Missing or late payment (can even be caused by autopay messups) triggering a switch to 23% balance within the 21 month period.

Is the risk of falling off track and having to pay 23% interest per month worth saving $58 a month? Only you can decide!

Midwest

  • Handlebar Stache
  • *****
  • Posts: 1358
Re: Transfer student loans to 0% credit card?
« Reply #10 on: February 05, 2016, 12:08:48 PM »
Here's an evil/civil disobedient thought I've always had.   What if you were able to transfer all your student loans to credit cards, and then declare bankruptcy?    You could consider it morally wrong, or if a big group of people did it you could consider it a mass act of civil disobedience aimed at the college industrial complex.

Thoughts?

Evil or not, political or not, wrong or not, it won't work.

Student loans remain non-dischargable in bankruptcy even if the exact vehicle by which they are paid changes. 

And it's not at all hard to find that out:

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=balance+transfer+student+loan+bankruptcy

So keep thinking, but think better next time.

Is it really that clear cut if you don't commit fraud (ie transfer with the intent of filing bankruptcy)?   

For instance transfer to credit card and attempt to repay (as the OP indicated).  Some time later, you situation changes dramatically and you are forced into an unanticipated bankruptcy. 

In the example, I don't see fraud and personally would prefer to be a debtor with credit card debt that might get challenged as relating to old student loans than pure student loan debt.  Comprehending the benefits of converting non-dischargeable debt at the time of conversion is not the same as intending to discharge at the time of conversion.

See attached.

http://www.creditcards.com/credit-card-news/paying-off-student-loans-credit-cards-bad-idea-1282.php

FYI, not an attorney nor do I play one on TV so the attached should not be considered legal advice.

To the OP, it's risky unless you are certain you can pull it off.  You could always transfer part of the balance that you are 100% certain you can pay off.

bobechs

  • Handlebar Stache
  • *****
  • Posts: 1068
Re: Transfer student loans to 0% credit card?
« Reply #11 on: February 05, 2016, 12:36:19 PM »
It's not a question of fraud.  Fraud, if found, would make the situation much worse, but the nub of the problem is that student loan debt, even shifted to a credit card, is non-dischargable in bankruptcy.

Period.

Even the best of faith and the post-mortem endorsement of Saint Teresa will not make a student loan balance transferred to a credit card into anything but a student loan under bankruptcy law.  And student loans are not dischargeable.

Lots of people have thought of the idea, which is why I linked to the Google page showing that they have inquired.

jmadlena

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Seattle, WA
Re: Transfer student loans to 0% credit card?
« Reply #12 on: February 05, 2016, 12:38:58 PM »
Okay I'm bored. I made the spreadsheet for you. For all purposes let's assume you could apply for an unlimited amount of cards to total a 73000 (need the credit limit to cover any balance transfer fees and the top end of your income falls in the 25% tax bracket.

Assuming you could payoff your 70k@6.5% loan off by YE 2017 in equal payments of 3385/month. In total  you'd pay 4441 in interest. With an expected refund of 1110 on your tax return from student loan interest deduction. With a 3% BT fee, if you moved all your loans to CC's you would pay 2100 in fees at the start.

So net after 21 months you'd save $1230 or $58/month.

Risks:
Falling off track and paying 23% interest on the BT balance at the end of the 21 month period. Job loss, expensive car repairs not saved for, forced move, lots of stuff could cause this.
Missing or late payment (can even be caused by autopay messups) triggering a switch to 23% balance within the 21 month period.

Is the risk of falling off track and having to pay 23% interest per month worth saving $58 a month? Only you can decide!

Wow! Thanks so much for taking the time to do the math. I had done some already, so my math was a bit different. I can't pay in equal lumps, so I am starting at $1,700 per month and by the end should be at around $4,500 per month. This is due to my current salary, and my scheduled raises over the next 1.5 years (in my contract).

In my schedule, I would pay $5,115.30 in interest, which makes the delta a bit bigger.

However, you are right that it is a lot of risk for potentially small reward. If it was $10,000 I would feel more strongly about it, but saving $2-3,000 is not enough when compared to the risk of getting caught at 15%+.

I'll have to look into doing some smaller lumps, or just try to refinance using a normal lender to get a better rate. There is also the option of a no-fee balance transfer on a different card, but I'd have to look into if I could transfer my SL to it.

I appreciate the time you've taken to help me decide!

Sibley

  • Magnum Stache
  • ******
  • Posts: 4793
  • Location: Northwest Indiana
Re: Transfer student loans to 0% credit card?
« Reply #13 on: February 05, 2016, 12:42:18 PM »
can you refinance the SLs to a lower rate? SoFi, etc? That would help, without risking anything crazy with credit cards.

therethere

  • Pencil Stache
  • ****
  • Posts: 855
Re: Transfer student loans to 0% credit card?
« Reply #14 on: February 05, 2016, 12:52:26 PM »
I did it successfully with an unmustachian car loan and some amount of student loans. I kept it under 10k buckets and just would do another one when the first one was paid off. I got notice of a layoff 2 weeks before my last payment so I got extremely lucky. That's why I caution people to understand the actual amount of savings and whether it is worth the risk. A lot of unexpected stuff can happen in your life in 2 years!

okobrien

  • Stubble
  • **
  • Posts: 107
    • Up From Wage Slavery
Re: Transfer student loans to 0% credit card?
« Reply #15 on: February 05, 2016, 01:05:51 PM »
Assuming therethere's math is correct, the idea doesn't look too attractive to me.  Also, what I have found-as somebody who had done a little credit card churning over the years-is the cards that offer great debt transfers usually start off with really low limits.

jmadlena

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Seattle, WA
Re: Transfer student loans to 0% credit card?
« Reply #16 on: February 05, 2016, 02:28:34 PM »
I did it successfully with an unmustachian car loan and some amount of student loans. I kept it under 10k buckets and just would do another one when the first one was paid off. I got notice of a layoff 2 weeks before my last payment so I got extremely lucky. That's why I caution people to understand the actual amount of savings and whether it is worth the risk. A lot of unexpected stuff can happen in your life in 2 years!

You're right, a lot of unexpected things could happen. If I did proceed, I would keep it to small amounts, no more than $10,000. Thanks for all of your advice.

can you refinance the SLs to a lower rate? SoFi, etc? That would help, without risking anything crazy with credit cards.

I've been looking at some places like SoFI. When I was playing with the numbers 6 months ago I saw really great rates, but now rates aren't much better than what I'm currently paying. As my income goes up I suppose they will drop as well.

Assuming therethere's math is correct, the idea doesn't look too attractive to me.  Also, what I have found-as somebody who had done a little credit card churning over the years-is the cards that offer great debt transfers usually start off with really low limits.

Yeah, it doesn't look very attractive to me either. I'd hate to screw myself over to save a $2-3k. A better option would either be much smaller chunks that I know I can pay off for sure, or refinancing through a regular lender.

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1044
Re: Transfer student loans to 0% credit card?
« Reply #17 on: February 05, 2016, 09:31:39 PM »
[T]he nub of the problem is that student loan debt ... is non-dischargable in bankruptcy.

Period.

... [S]tudent loans are not dischargeable.

This is still not true, no matter how many times people say it. In the United States, student loans are already dischargeable in bankruptcy, as I discussed in a past post.

bobechs

  • Handlebar Stache
  • *****
  • Posts: 1068
Re: Transfer student loans to 0% credit card?
« Reply #18 on: February 06, 2016, 03:18:30 PM »
[T]he nub of the problem is that student loan debt ... is non-dischargable in bankruptcy.

Period.

... [S]tudent loans are not dischargeable.

This is still not true, no matter how many times people say it. In the United States, student loans are already dischargeable in bankruptcy, as I discussed in a past post.

I will admit that discharge, under truly extraordinary circumstances and aggressively pushed to the limit of litigation, is a possibility.  I will not admit that it is much more than a theoretical possibility in the real world.  If you can show me from experience more than a single case where this approach worked, or a legitimate study showing the frequency at which it works, I'll eat my words.

You may be able to get away with killing and eating your shipmate in a lifeboat situation.  Then again, you may not.  I wouldn't urge reliance on a single case to decide what to do in the actual case.

Cathy

  • Handlebar Stache
  • *****
  • Posts: 1044
Re: Transfer student loans to 0% credit card?
« Reply #19 on: February 06, 2016, 03:52:42 PM »
I wouldn't urge reliance on a single case to decide what to do in the actual case.

I offered no view about what anybody should do relative to student loans or otherwise. I also offered no view about the commonality of discharging student loans in bankruptcy, or about any of the other things that you seem to want to argue about.

My post was limited to what it actually said: namely, I simply pointed out that your earlier assertion was false. If you want to claim something like "student loans are rarely discharged in bankruptcy", that may be true (assuming you have some data to back it up; as the person making the claim, the onus is on you). However, what you actually claimed was "student loan debt ... is non-dischargable in bankruptcy" and that is unquestionably false.

If you don't want me to point out that your assertions are false, don't make false assertions. One way to avoid false assertions is to ensure that every legal claim is supported by proper authority, which you would then cite in the post. I would encourage you to provide proper authority for any legal claims that you want to make in the future.
« Last Edit: February 06, 2016, 04:16:45 PM by Cathy »

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8411
  • Age: 64
  • Location: The Villages, Florida

bobechs

  • Handlebar Stache
  • *****
  • Posts: 1068
Re: Transfer student loans to 0% credit card?
« Reply #21 on: February 06, 2016, 04:39:30 PM »
I wouldn't urge reliance on a single case to decide what to do in the actual case.

I offered no view about what anybody should do relative to student loans or otherwise. I also offered no view about the commonality of discharging student loans in bankruptcy, or about any of the other things that you seem to want to argue about.

My post was limited to what it actually said: namely, I simply pointed out that your earlier assertion was false. If you want to claim something like "student loans are rarely discharged in bankruptcy", that may be true (assuming you have some data to back it up; as the person making the claim, the onus is on you). However, what you actually claimed was "student loan debt ... is non-dischargable in bankruptcy" and that is unquestionably false.

If you don't want me to point out that your assertions are false, don't make false assertions. One way to avoid false assertions is to ensure that every legal claim is supported by proper authority, which you would then cite in the post. I would encourage you to provide proper authority for any legal claims that you want to make in the future.

Nope, you represented discharge of student loans in bankruptcy as viable.  You cited a case as sole authority for the proposition.

What you failed to say, and by that omission represented the true situation, is that this single outlier case is other than a reliable way to deal with student loan debt.

The omission, and therefore the misrepresentaion, is yours.

I'm not under an obligation to meet your imposed standards of discourse.  Become a judge and admit me to your bar and that could change, at least in your court.  Even though that's not going to happen in this world anymore than beating a student loan in the way your singular case proposes is actually going to work.

'False',as you use the term is of course a studied insult.  I take it as such, don't expect an apology from someone as smug as yourself, and so other than this comment intend to let it pass for now.

greaper007

  • Handlebar Stache
  • *****
  • Posts: 1129
Re: Transfer student loans to 0% credit card?
« Reply #22 on: February 10, 2016, 04:38:42 PM »
Here's an evil/civil disobedient thought I've always had.   What if you were able to transfer all your student loans to credit cards, and then declare bankruptcy?    You could consider it morally wrong, or if a big group of people did it you could consider it a mass act of civil disobedience aimed at the college industrial complex.

Thoughts?

Evil or not, political or not, wrong or not, it won't work.

Student loans remain non-dischargable in bankruptcy even if the exact vehicle by which they are paid changes. 

And it's not at all hard to find that out:

https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=balance+transfer+student+loan+bankruptcy

So keep thinking, but think better next time.

Wow, thanks for the douchey response....